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DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements As of and For the Year Ended December 31, 2016

ATTACHMENT: Independent Auditor’s Report

DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD.

DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIESConsolidated Financial Statem

ents Decem

ber 31, 2016

INDEPENDENT AUDITOR’S REPORT

English Translation of Independent Auditor’s Report Originally Issued in Korean on March 23,

2017

To the Shareholders and Board of Directors of

Doosan Heavy Industries & Construction Co., Ltd.

We have audited the accompanying consolidated financial statements of Doosan Heavy Industries

& Construction Co., Ltd. (the “Company”) and its subsidiaries (the “Group”), which comprise

the consolidated statements of financial position as of December 31, 2016 and the consolidated

statements of income, consolidated statements of comprehensive income, consolidated statements

of changes in shareholders’ equity and consolidated statements of cash flows, all expressed in

Korean won, for the year ended December 31, 2016 and a summary of significant accounting

policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated

financial statements in accordance with Korean International Financial Reporting Standards (“K-

IFRS”) and for such internal control as management determines is necessary to enable the

preparation of consolidated financial statements that are free from material misstatement, whether

due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an audit opinion on these consolidated financial statements based

on our audits. We conducted our audits in accordance with Korean Standards on Auditing

(“KSAs”). Those standards require that we comply with ethical requirements and plan and

perform the audit to obtain reasonable assurance about whether the consolidated financial

statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the consolidated financial statements. The procedures selected depend on the

auditor’s judgment, including the assessment of the risks of material misstatement of the

consolidated financial statements, whether due to fraud or error. In making those risk assessments,

the auditor considers internal control relevant to the entity’s preparation and fair presentation of

the consolidated financial statements in order to design audit procedures that are appropriate in

the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the

entity’s internal control. An audit also includes evaluating the appropriateness of accounting

policies used and the reasonableness of accounting estimates made by management, as well as

evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our audit opinion.

Deloitte Anjin LLC9F., One IFC,10, Gukjegeumyung-ro,Youngdeungpo-gu, Seoul07326, Korea

Tel: +82 (2) 6676 1000Fax: +82 (2) 6674 2114www.deloitteanjin.co.kr

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/kr/about for a more detailed description of DTTL and its member firms.

© 2017. For information, contact Deloitte Anjin LLC

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the

financial position of the Doosan Heavy Industries & Construction Co., Ltd as of December 31,

2016 and its financial performance and its cash flows for the year ended December 31, 2016 in

accordance with K-IFRS.

Emphasis of matter

Although our opinion is not modified in respect of this matter, we draw attention to the note 26

to the financial statements on the following matters.

(1) Emphasis matters related to production to order industry and others

In accordance with ‘Auditing practice guidance 2016-1’ in the Republic of Korea, we noted

this matter requires significant attention per our professional judgement and from

communication with those charged with governance. These matters were addressed in respect

to our review of the interim consolidated financial statements as a whole, and we do not

provide a separate opinion on these matters.

In forming an audit opinion on the consolidated financial statements of Doosan Heavy

Industries & Construction Co., Ltd., we incorporated the results of the audit procedures

performed on the significant audit areas as follows:

1) General matters

The general matters applicable to order industry described in this report that requires

significant attention are as follows.

The Group recognizes contract revenue and contract cost associated with the construction

contract when the outcome of a contract can be reliably measured by stage of completion

of the contract activity at the end of the reporting year. However, when the outcome of a

construction contract cannot be estimated reliably, revenue is recognized only to the extent

the contract costs have incurred that is probable that it will be recoverable and contract

costs is recognized as expenses in the period in which they are incurred. When the

uncertainties that prevented the outcome of the contract being estimated reliably no longer

exist, revenue and expenses associated with the construction contract shall be recognized

as revenue and expenses respectively by stage of completion of the contract activity at the

end of the reporting period. When an uncertainty arises on the collectability of an amount

already included in contract revenue, and already recognized in profit or loss, the

uncollectible amount or the amount of which the is no longer probable is recognized as an

expense rather than as an adjustment to the amount of contract revenue.

In case the Group is able to estimate the outcome of a construction contract reliably, the

Group shall determine the stage of completion of a contract. The Group uses the method

that reliably measures the work performed, depending on the nature of the contract. As of

December 31, 2016, the Group determined that using the rate of accumulated costs incurred

until the end of the reporting period in comparison with total estimated costs per individual

contract is the most reliable method to measure the work performed, and therefore the

Group uses the stage of completion to calculate the contract costs incurred to date and

recognizes contract revenue and contract cost accordingly.

When contract costs incurred to date plus recognized profits(less recognized losses) exceed

the progress billing, the surplus is shown as amounts due from customers for contract work.

For contracts where progress billings exceed contract the costs incurred to date plus

recognized profits(less recognized losses), the surplus is shown as the amounts due to

customers for contract work.

2) Adequacy of revenue recognition based on the stage of contract completion by input

method

In case the Group recognizes revenues and costs based on the stage of contract completion

when the outcome of a construction contract cannot be estimated reliably, there is a risk of

misstatement on revenues and costs. Additionally, when the Group uses the method to

measure stage of completion which does not reflect the work performed, there is a risk of

material misstatement on revenues and costs. Therefore, we determined revenue

recognition based on the stage of contract completion by input method to require

significant attention.

We conducted the following main procedures to review the adequacy of revenue

recognition based on the stage of contract completion by input method.

• We inquired and documented our inspection whether major projects meet all criteria to

measure the outcome of a construction contract can be estimated reliably.

• We performed inquiries about whether the input method that the Group used is able to

reliably measure the work performed.

• We performed inquiries whether the outcome of a construction contract can still be

estimated reliably for delaying projects exist.

• We performed inquiries and analytical procedures to confirm whether the outcome of a

construction contract can still be reliably estimate a project that the Group recognizes

allowances of accounts receivable or due from the customers for contract work.

3) The uncertainty of the estimated total contract cos

As disclosed in notes 26 to the financial statements, the impact on current and future profit

and loss due to changes in estimated total contract cost is KRW 118,995 million and KRW

128,912 million respectively and impact on the balance of due from (to) customers for

contract work amounts to KRW 118,995 million. As such, in case the Group changes

estimates of total contract cost, the stage of contract completion could be revised resulting

in changes in current and future profit and loss and the balance of due from (to) the

customers for contract work. As such, we determined that the uncertainty of the estimated

total contract cost that reflects management's judgment requires significant attention.

We performed the following main audit procedures in order to identify the impact on

financial statements due to the uncertainty of estimate of the estimated total contract cost.

• We performed inspection about the summation logic of entity’s system and procedures

to measure the estimated total contract costs.

• We performed inspection about the interface by verifying whether the actual costs are

equal to the estimated total contract costs which is calculated by Group’s system or not.

• We performed inspection about the interface by comparing the Group’s system with the

contract party’s system.

• We performed inquiries about reason for projects that the proportion that estimated total

contract costs bear to the total contract revenue has been changed significantly compared

to prior period.

• We performed inquiries about reason for significant change of the estimated total

contract cost compared to prior period.

• We performed inquiries for a reason for projects that are finalized during current period

and actual cost to revenue ratio is departed from estimated cost to revenue ratio.

• We have compared the estimated total contract costs at the end of this period against

estimated total contract costs in the Group’s system about major project.

• We have performed comparison and analytical procedures between estimated total

contract costs at the end of this period and estimated total contract costs after the end of

this period about major project.

• We performed comparison and analytical procedures between future estimated costs in

the end of this period and the detail of awarding contract after the end of this period

about a part of project.

4) Adequacy of the calculation of stage of contract completion.

As disclosed in notes 3 to the financial statements (significant accounting judgements and

key sources of estimation uncertainties), there is a risk of misstatements that could adjust

the future balance of assets and liabilities if the Group recognizes revenue based on the

stage of contract completion. Additionally, when the Group measures the stage of

completion of a contract based on the proportion that contract costs incurred for work

performed to date bear to the estimated total contract costs, there is a risk of misstatements

on revenue and cost if the Group includes costs those contract costs that does not reflect

work performed when the Group measure the stage of contract completion resulting in

inadequate calculation. Therefore we determined that adequacy of the calculation of stage

of contract completion requires significant attention.

We performed the following main audit procedures to identify adequacy of the calculation

of stage of contract completion.

• We performed recalculation of the stage of contract completion.

• We performed inquiries about whether contract costs reflect work performed were

included in costs incurred to date and policies implemented to identify contract costs

which should be excluded in calculation of stage of contract completion.

• We performed inquiries about projects that the stage of contract completion changed

significantly compared to prior period.

• We performed comparative review between the stage of contract completion and the

stage of progress completion about major projects.

• We documented our inspection results about the sample extracted from major projects

about contract cost incurred.

5) Collectability of amount due from customers for contract work

The amount due from customers is KRW 1,930,663 million and KRW 1,898,305 million,

as of December 31, 2016 and 2015, respectively, which is increased by 1.7% compared to

the end of prior period. We determined that the collectability of amount due from

customers for contract work requires significant attention, given there are overstatement

risks of misstatement on the amount of due from customers in case the Group fails to

recognize appropriate amount of allowance resulting from inappropriate collectability

valuation. Since there is an uncertainty over the estimation of collectable amount due from

customers for contract work, we determined that collectability of amount due from

costumers for contract work requires significant attention.

We performed the following main audit procedures to identify the collectable amount due

from customers for contract work.

• We performed inquiries and analytic procedures on slow-moving due from the

customers for contract work.

• We documented our inspection results on long-term due from the customers for contract

work.

• We performed inquiries and analytical procedures about collectability in case there are

projects which the Group recognized allowances on the account receivable and have

outstanding due from customers for contract work.

• We performed inquiries and analytical procedures about collectability of due from

customers for contract work related to delaying projects.

6) Adequacy of accounting treatment of variations in contract work

The Group includes the impact of variations in contract work to contract revenue only if it

is probable that the customer will approve the variation and the amount of revenue arising

from the variation and the amount of revenue can be reliably measured. And the revenue

could be increased by a claim that is an amount that the contractor seeks to collect from

the customer or another party as reimbursement for costs not included in the contract price.

The Group only includes the impact of a claim to the contract revenue when negotiations

have reached an advanced stage such that it is probable that the customer will accept the

claim and it is probable the amount will be accepted by the customer and such can be

measured reliably. Additionally, the amount of contract revenue may decrease as a result

of penalties arising from delays caused by the contractor in the completion of the contract

when it is probable that the penalty will incur and the penalty can be reasonably measured.

Since there is a risk of misstatement of revenue when the Group reflect change orders,

claims and penalty to the contract revenue inappropriately, we determined that the

accounting treatment of variations in contract work requires significant attention.

We performed the following main audit procedures to identify adequacy of accounting

treatment of variations in contract work

• We performed inquiries about adequacy of accounting treatment of variations in contract

work and penalties.

• We performed inquiries about reason for significant variation of the estimated total

contract revenue.

• We performed inquiries about reason for projects that the proportion that estimated total

contract costs bear to the total contract revenue has been changed significantly compared

to prior period.

• We performed analytical procedure and document inspection for cut-off related

significant variation of contract revenue after December 31, 2016.

• We performed inquiries and analytical procedures for projects that the Group recognizes

penalties.

• We performed inquiries about whether there are any exposures to liquidated damages

for late delivery of contract works.

Others

The accompanying consolidated statements of financial position as of December 31, 2015, and

the consolidated statements of income, comprehensive income, changes in equity and cash flows

for the year then ended were audited by other auditors in accordance with the KSAs and an

unqualified opinion was expressed on March 17, 2016.

March 23, 2017

Notice to Readers

This report is effective as of March 23, 2017, the independent auditors’ review report date.

Certain subsequent events or circumstances may have occurred between the independent auditors’

review report date and the time independent auditors’ review report is read. Such events or

circumstances could significantly affect the accompanying consolidated financial statements and

may result in modifications to the independent auditors’ review report.

DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO.,

LTD. AND SUBSIDIARIES (the “Group”) CONSOLIDATED FINANCIAL STATEMENTS

As of and For the Years Ended December 31, 2016 and 2015

The accompanying consolidated financial statements, including all footnote disclosures, were

prepared by, and are the responsibility of, the Group.

Ji Taik Chung

Chief Executive Officer

DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD.

-1-


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2016 AND 2015

ASSETS Notes December 31, 2016 December 31, 2015

(In Korean won)

CURRENT ASSETS:

Cash and cash equivalents 4,5,10 ￦1,369,500,991,930 ￦1,893,007,747,878

Short-term financial instruments 4,5,10,34 213,506,823,569 475,822,932,100

Short-term investments in securities 4,6,10 141,391,168,087 440,994,129

Trade receivables, net 4,7,10,26,34,35 2,077,740,448,109 2,512,793,814,167

Due from customers for contract work, net 7,26 1,930,663,406,075 1,898,305,160,818

Other receivables, net 4,7,10,35 310,731,723,694 389,866,374,113

Prepayments 7 509,753,411,844 617,000,416,576

Prepaid expenses 101,614,362,264 80,051,592,909

Short-term loans, net 4,7,10,35 114,094,313,691 178,384,058,498

Derivative financial assets 4,9,10 24,494,373,789 24,409,004,032

Firm commitment assets 9 108,462,686,041 111,500,155,075

Inventories, net 8,34 1,730,606,651,053 2,196,491,764,508

Assets classified as held-for-sale 37 164,771,988,116 119,220,470,226

Other current assets 4,7,10 237,819,498,203 227,111,159,002

Total Current Assets 9,035,151,846,465 10,724,405,644,031

NON-CURRENT ASSETS:

Long-term financial instruments 4,5,7,10 31,395,752,125 77,402,476,564

Long-term investments in securities 4,6,10,34 286,332,778,653 190,420,094,063

Investments in associates and joint ventures 11,34 80,681,100,934 62,411,138,388

Long-term loans, net 4,7,10,35 910,287,291,842 1,019,229,605,248

Property, plant and equipment, net 12,34 6,381,539,477,026 7,206,578,365,565

Intangible assets, net 13 6,646,199,554,028 6,657,774,324,948

Investment properties 14 270,299,018,663 30,516,385,496

Derivative financial assets 4,9,10 80,958,564,225 63,996,129,207

Firm commitment assets 9 80,039,145,810 73,771,115,605

Guarantee deposits, net 4,5,7,10 320,258,434,073 253,322,937,601

Deferred tax assets 31 641,043,930,920 782,988,943,041

Other non-current assets 4,7,10 68,381,295,591 117,323,450,501

Total Non-Current Assets 15,797,416,343,890 16,535,734,966,227

TOTAL ASSETS ￦24,832,568,190,355 ￦27,260,140,610,258

(Continued)

-2-




LIABILITIES AND EQUITY Notes December 31, 2016 December 31, 2015

(In Korean won)

CURRENT LIABILITIES:

Trade payables 4,10,35 ￦2,452,138,916,210 ￦2,259,960,866,728

Short-term borrowings 4,10,15,34 2,892,687,287,708 3,943,165,035,852

Asset-backed loans 4,10,15 432,987,691,317 394,044,438,739

Other payables 4,10,35 853,291,882,847 797,731,063,373

Advanced received 358,558,830,351 346,939,985,983

Due to customers for contract work 26 905,668,479,628 1,200,598,386,238

Withholdings 71,843,985,942 84,990,443,174

Accrued expenses 10 491,867,768,087 579,421,166,491

Income tax payable 31 47,638,985,415 35,923,644,791

Current portion of long-term debt 4,10,15,34 2,531,345,860,669 2,252,663,857,555

Derivative financial liabilities 9,10 174,733,740,322 217,439,689,022

Firm commitment liabilities 9 11,617,547,945 16,325,825,501

Other provisions 17 118,561,044,391 130,417,938,027

Debt classified as held-for-sale 37 24,706,942,176 -

Other current liabilities 4,10 214,167,916,135 195,873,537,768

Total Current Liabilities 11,581,816,879,143 12,455,495,879,242

NON-CURRENT LIABILITIES:

Bonds 4,10,15 1,753,691,202,152 2,547,984,215,918

Long-term borrowings 4,10,15,34 2,534,990,813,266 3,282,290,330,730

Long-term asset-backed loans 4,10,15 246,974,997,243 150,408,282,978

Long-term other payables 4,10 35,611,850,491 41,882,360,478

Employee benefits liability 16 866,404,829,367 900,192,936,968

Deposits received 10 189,263,467,929 152,617,695,614

Derivative financial liabilities 9,10 128,882,334,708 147,638,954,643

Firm commitment liabilities 9 18,966,908,638 28,734,919,118

Deferred tax liabilities 31 183,072,101,886 118,224,240,213

Other provisions 17 233,110,602,232 244,242,092,508

Other non-current liabilities 4,10 236,951,287,264 164,321,029,716

Total Non-current Liabilities 6,427,920,395,176 7,778,537,058,884

Total Liabilities ￦18,009,737,274,319 ￦20,234,032,938,126

(Continued)

-3-




Notes December 31, 2016 December 31, 2015

(In Korean won)

EQUITY:

Equity attributable to owners of the Parent:

Capital stock 1,18 ￦596,808,980,000 ￦596,808,980,000

Capital surplus 19 1,652,835,160,666 1,563,917,672,526

Other components of equity 20 (17,273,121,037) (105,157,160,978)

Accumulated other comprehensive income 9,10,21 538,782,208,792 512,011,506,902

Retained earnings 22 704,507,685,246 1,013,088,220,397

Subtotal 3,475,660,913,667 3,580,669,218,847

Non-controlling interests

Hybrid equity instruments 23 841,535,153,252 841,695,963,991

Other non-controlling interests 23 2,505,634,849,117 2,603,742,489,294

Subtotal 3,347,170,002,369 3,445,438,453,285

Total Equity 6,822,830,916,036 7,026,107,672,132

TOTAL LIABILITIES AND EQUITY

￦24,832,568,190,355 ￦27,260,140,610,258

(Concluded)

See Notes

-4-


CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Notes 2016 2015

(In Korean won)

SALES 24,25,26,35 ￦13,892,680,512,183 ￦14,470,549,808,958

COST OF SALES 26,27,35 11,477,492,314,794 12,283,242,564,168

GROSS PROFIT 2,415,188,197,389 2,187,307,244,790

Selling and

administrative expenses 10,27,28 1,624,015,375,186 2,214,638,986,828

OPERATING PROFIT 24 791,172,822,203 (27,331,742,038)

Finance income 10,29 1,016,003,108,731 1,203,283,247,735

Finance expenses 10,29 1,563,194,963,292 1,898,601,312,784

Other non-operating income 10,30 108,705,659,500 93,211,050,263

Other non-operating expenses 10,30 584,176,245,595 901,586,608,247

Share of loss in associates and joint ventures 11 (14,607,721,727) (81,659,482,860)

Loss before tax from continuing operations 31 (246,097,340,180) (1,612,684,847,931)

INCOME TAX EXPENSE 131,564,646,601 131,052,374,555

INCOME (LOSS) FROM CONTINUING

OPERATIONS ￦(377,661,986,781) ￦(1,743,737,222,486)

INCOME FROM DISCONTINUED OPERATIONS 38 162,137,200,834 (7,162,107,023)

NET INCOME 24 ￦(215,524,785,947) ￦(1,750,899,329,509)

Attributable to:

Owners of the Parent (170,750,790,211) (1,038,543,220,644)

Non-controlling interests (44,773,995,736) (712,356,108,865)

EARNINGS PER SHARE 32

Basic earnings per common share ￦(1,777) ￦(10,631)

Basic earnings per share from continuing operations (2,611) (10,210)

Basic earnings per share from discontinued operations 834 (421)

Diluted earnings per share (1,777) (10,631)

Diluted earnings per share from continuing operations (2,611) (10,210)

Diluted earnings per share from discontinued

operations

834 (421)

(Concluded)

See Notes

-5-


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


Note 2016 2015

(In Korean won)

NET INCOME ￦(215,524,785,947) ￦(1,750,899,329,509)

OTHER COMPREHENSIVE INCOME (LOSS) 21 (28,495,650,754) 319,962,397,817

Items that will not be reclassified subsequently to profit or loss: (96,116,788,148) 378,588,917,167

Remeasurements of net defined benefit liabilities 16 (68,268,654,681) 18,841,106,569

Net gain (loss) on revaluation of land 12 (27,848,133,467) 359,747,810,598

Items that may be reclassified subsequently to profit or loss: 67,621,137,394 (58,626,519,350)

Net change in unrealized fair value of available-for-sale

financial assets 10 19,919,849,838 (3,104,626,549)

Effective portion of changes in fair value of cash flow

hedges 9,10 20,130,625,897 12,063,776,264

Equity adjustments in equity method (debit) (108,837,338) 1,340,919,348

Net loss on translation of foreign operations 27,679,498,997 (68,926,588,413)

Total other comprehensive income (loss) ￦(244,020,436,701) ￦(1,430,936,931,692)

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:

Owners of the Parent (191,711,547,908) (726,791,363,904)

Non-controlling interests (52,308,888,793) (704,145,567,788)

(Concluded)

See Notes

-6-


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


Capital stock Capital surplus

Other components of

equity

Accumulated

other comprehensive

income Retained earnings

Non-controlling

interests Total

(In Korean won)

Balance at January 1, 2015 ￦596,808,980,000 ￦1,828,284,636,585 ￦(101,795,674,821) ￦220,918,859,061 ￦2,115,202,768,057 ￦3,017,582,151,050 ￦7,677,001,719,932

Total comprehensive income:

Loss of the period - - - - (1,038,543,220,644) (712,356,108,865) (1,750,899,329,509)

Remeasurement of the net defined benefit liabilities - - - - 3,500,483,847 15,340,622,722 18,841,106,569

Net change in unrealized fair value of AFS financial assets - - - (30,340,636,819) - 27,236,010,270 (3,104,626,549)

Effective portion of changes in fair value of cash flow hedges - - - 55,555,208,269 - (43,491,432,005) 12,063,776,264

Equity adjustments in equity method (debit) - - - 2,183,896,859 - (842,977,511) 1,340,919,348

Net loss on translation of foreign operations - - - (16,612,368,911) - (52,314,219,502) (68,926,588,413)

Net gain on revaluation of land - - - 280,306,548,443 17,158,725,052 62,282,537,103 359,747,810,598

Subtotal - - - 291,092,647,841 (1,017,884,011,745) (704,145,567,788) (1,430,936,931,692)

Dividends - - - - (84,230,535,915) - (84,230,535,915)

Stock option - 2,100,996,093 (1,116,157,779) - - - 984,838,314

Changes in the scope of consolidation - - - - - 1,080,996,843 1,080,996,843

Capital increase by issuing new shares of subsidiaries - - (231,156,754) - - 916,908,916,650 916,677,759,896

Dividends of the subsidiaries - - - - - (85,494,554,491) (85,494,554,491)

Stock option of the subsidiaries - 1,928,367,105 (1,731,065,518) - - 315,353,901 512,655,488

Transactions of treasury stock by subsidiaries - 23,860,561,032 - - - (33,858,304,362) (9,997,743,330)

Issuance and exercise of convertible bonds by subsidiaries - (65,478,549,444) - - - 105,988,016,531 40,509,467,087

Transfer of business between subsidiaries - - (283,106,106) - - 283,106,106 -

Changes of the non-controlling interest - (226,778,338,845) - - - 226,778,338,845 -

Balance at December 31, 2015 ￦596,808,980,000

￦1,563,917,672,526 ￦(105,157,160,978) ￦512,011,506,902 ￦1,013,088,220,397 ￦3,445,438,453,285 ￦7,026,107,672,132

(Continued)

-7-


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


Capital stock Capital surplus

Other components of

equity

Accumulated

other comprehensive

income Retained earnings

Non-controlling

interests Total

(In Korean won)

Balance at January 1, 2016 ￦596,808,980,000 ￦1,563,917,672,526 ￦(105,157,160,978) ￦512,011,506,902 ￦1,013,088,220,397 ￦3,445,438,453,285 ￦7,026,107,672,132

Total comprehensive income:

Loss of the period - - - - (170,750,790,211) (44,773,995,736) (215,524,785,947)

Remeasurement of the net defined benefit liabilities - - - - (69,873,976,427) 1,605,321,746 (68,268,654,681)

Net change in unrealized fair value of AFS financial assets - - - 15,157,202,176 - 4,762,647,662 19,919,849,838

Effective portion of changes in fair value of cash flow hedges - - - 8,543,444,308 - 11,587,181,589 20,130,625,897

Equity adjustments in equity method (debit) - - - (52,099,346) - (56,737,992) (108,837,338)

Net profit(loss) on translation of foreign operations - - - 35,097,951,303 - (7,418,452,306) 27,679,498,997

Net gain(loss) on revaluation of land - - - (36,361,223,176) 26,527,942,918 (18,014,853,209) (27,848,133,467)

Subtotal - - - 22,385,275,265 (214,096,823,720) (52,308,888,246) (244,020,436,701)

Dividends - - - - (94,483,711,431) - (94,483,711,431)

Stock option - 2,015,482,504 (1,690,789,528) - - - 324,692,976

Disposal of treasury stock - 53,023,096,674 90,260,916,283 - - - 143,284,012,957

Acquisition of investments in subsidiaries - (9,541,315,814) (59,899,143) - - (448,432,336,102) (458,033,551,059)

Reduction of capital stock of subsidiaries without any refund - 860,011,026 - - - (862,871,474) (2,860,448)

Capital stock increase by issuing new shares of subsidiaries - 584,932,605 8,050,624,034 - - (7,961,277,354) 674,279,285

Dividends of the subsidiaries - - - - - (53,324,066,352) (53,324,066,352)

Stock option of the subsidiaries - 1,524,014,014 (1,912,830,727) - - (21,735,404) (410,552,117)

Transactions of treasury shares by subsidiaries - 6,256,086,126 (739,097) - - (18,581,712,073) (12,326,365,044)

Exercising of convertible bonds by subsidiaries - (4,791,047,084) - - - 7,112,878,144 2,321,831,060

Disposal of share of investments in subsidiaries - 35,715,299,969 (6,763,241,881) 4,385,426,625 - 468,281,455,861 501,618,940,574

Changes in consolidation scope - - - - - 12,906,000 12,906,000

Bond with warrant increase by issuing and exercising of

subsidiaries - 4,453,082,166 - - - 7,638,266,627 12,091,348,793

Others - (1,182,154,046) - - - 178,929,457 (1,003,224,589)

Balance at December 31, 2016 ￦596,808,980,000

￦1,652,835,160,666

￦(17,273,121,037)

￦538,782,208,792

￦704,507,685,246 ￦3,347,170,002,369

￦6,822,830,916,036

(Concluded)

See Notes

-8-


CONSOLIDATED STATEMENTS OF CASH FLOWS


Notes 2016 2015

(In Korean won)

CASH FLOWS FROM OPERATING ACTIVITIES:

Cash generated from operations 36 ￦1,491,876,388,986 ￦565,940,588,916

Net income(loss) (215,524,785,947) (1,750,899,329,509)

Adjustments 1,667,514,803,768 2,796,807,824,518

Changes in operating assets and liabilities 39,886,371,165 (479,967,906,093)

Interest received 39,862,994,719 41,862,736,122

Interest paid (495,762,417,342) (576,553,756,935)

Dividends received 303,597,150 1,716,215,002

Income tax paid (68,713,777,552) (107,337,929,391)

Net cash flows provided by (used in) operating activities 967,566,785,961 (74,372,146,286)

CASH FLOWS FROM INVESTING ACTIVITIES:

Cash inflows from investing activities:

Decrease in short-term financial instruments 297,898,738,398 202,203,565,224

Disposal of short-term investment in securities - 80,499,361,714

Collection of short-term loans 65,275,787,851 103,894,172,141

Disposal of long-term financial instruments 63,611,006,170 11,158,450,670

Disposal of long-term investment in securities 2,435,824,713 15,745,912,830

Collection of long-term loans 229,701,707,401 132,493,369,838

Disposal of investment in subsidiaries - 5,999,506,443

Disposal of investments in associates - 126,667,468,493

Disposal of property, plant and equipment 69,257,010,540 30,891,342,577

Disposal of intangible assets 1,636,717,701 2,863,652,101

Disposal of investment property 1,173,000,000 1,577,382,829

Disposal of non-current assets classified as held-for-sale 84,419,819,225 -

The sales of business unit 1,154,821,544,576 128,317,226,465

Subtotal 1,970,231,156,575 842,311,411,325

Cash outflows for investing activities:

Increase in short-term financial instruments (95,091,693,985) (79,222,803,135)

Acquisition of short-term investments in securities (127,937,629,145) (3,955,604,933)

Increase in short-term loans (27,800,272,132) (155,702,429,216)

Acquisition of long-term financial instruments (16,895,446,044) (56,094,727,889)

Acquisition of long-term investments in securities (131,466,690,976) (12,416,609,062)

Increase in long-term loans (179,347,198,041) (212,259,140,998)

Acquisition of investments in associates and joint ventures (9,791,807,060) (1,108,000,000)

Acquisition of shares in subsidiaries (31,841,144,402) (54,940,467,860)

Acquisition of property, plant and equipment (290,902,622,062) (388,747,759,099)

Acquisition of intangible assets (248,694,126,605) (253,851,630,523)

Acquisition of investment property (1,122,000,000) (3,727,430,450)

The sales of business unit (4,573,742,849) -

Subtotal (1,165,464,373,301) (1,222,026,603,165)

Net cash provided by (used in) investing activities ￦804,766,783,274 ￦(379,715,191,840)

(Continued)

-9-


CONSOLIDATED STATEMENTS OF CASH FLOWS


2016 2015

(In Korean won)

CASH FLOWS FROM FINANCING ACTIVITIES:

Cash inflows from financing activities:

Net increase in short-term borrowings ￦- ￦1,172,995,994,644

Increase in short-term bonds 180,000,000,000 -

Increase in asset-backed loans 714,113,619,260 1,294,518,541,269

Issuance of bonds 735,232,370,028 710,193,878,690

Increase in long-term borrowings 886,199,800,000 742,556,421,012

Disposals of treasury stock 160,218,812,676 -

Disposals of investment stock in subsidiaries 365,449,720,215 -

Capital increase by issuing new shares of subsidiaries 694,701,094 916,677,759,896

Changes in non-controlling interests - 1,080,996,843

Subtotal 3,041,909,023,273 4,838,023,592,354

Cash outflows for financing activities:

Net decrease in short-term borrowings (865,054,268,013) -

Repayment of current portion of long-term debt (2,189,786,666,558) (1,255,456,228,592)

Decrease in asset-backed loans (682,900,000,000) (1,203,450,000,000)

Repayment of bonds (300,602,677,526) (45,694,643,604)

Repayment of long-term borrowings (636,852,572,778) (1,094,394,528,323)

Repayment of financial lease liabilities (149,982,177) (660,278,141)

Acquisition of additional shares in subsidiaries (458,033,551,059) -

Dividend (94,483,711,431) (84,230,535,915)

Dividend of subsidiaries (53,324,066,352) (85,494,554,491)

Acquisition of treasury stock by subsidiaries (12,326,365,036) (9,997,743,330)

Capital increase with consideration in subsidiaries (11,253,730) -

Fees paid in capital stock reduction without consideration in subsidiaries (2,860,448) -

Subtotal (5,293,527,975,108) (3,779,378,512,396)

Net cash provided by (used in) financing activities (2,251,618,951,835) 1,058,645,079,958

EFFECT OF EXCHANGE RATE CHANGES IN CASH AND CASH EQUIVALENTS (41,177,184,921) (9,110,207,916)

CLASSIFICATION AS HELD FOR SALE ASSETS (3,044,188,427) -

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (523,506,755,948) 595,447,533,916

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 1,893,007,747,878 1,297,560,213,962

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR ￦1,369,500,991,930 ￦1,893,007,747,878

(Concluded)

See Notes

-10-


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS:

(1) The Parent company

Doosan Heavy Industries & Construction Co., Ltd. (the “Company”) was incorporated

on September 20, 1962, with its headquarters in Changwon, Korea. Since its

incorporation, the Company has grown to become one of the leading global

manufacturers of advanced power generation equipment. The Company engages in

manufacturing a range of thermal and nuclear power generation equipment including

boilers, turbines and generators. It also engages in engineering, procurement and

construction of thermal power plants. The Company also supplies seawater desalination

and water treatment solutions to its clients.

(2) Consolidated subsidiaries

The details of consolidated subsidiaries as of December 31, 2016 and 2015 are as follows:

Ownership ratio of the

Group (%) (*1) Financial

closing

date(*2) Subsidiary Type of business

Location

December

31, 2016

December

31, 2015

Doosan Asset Management Company Co., Ltd. Property development Korea 100 100 December 31

Doosan Heavy Industries Vietnam Co., Ltd. Manufacturing of

machinery & equipment

Vietnam

100 100 December 31

HF Controls Corp. Manufacturing USA 100 100 December 31

Doosan HF Controls Asia Co.,Ltd. Manufacturing Korea 100 100 December 31

PT. Doosan Heavy Industries Indonesia Manufacturing Indonesia 55 55 December 31

Doosan Heavy Industries Japan Corp. Sales Japan 100 100 December 31

S.C Doosan IMGB S.A. Manufacturing Romania 99.86 99.85 December 31

Doosan Enpure Ltd. Engineering & Services UK 100 100 December 31

Doosan Construction Site Solutions Vietnam Co., Ltd. Equipment lease Vietnam 100 100 December 31

Doosan Power Systems India Private Ltd. Engineering & Services India 100 100 March 31

Doosan Heavy Industries Muscat LLC Manufacturing Oman 70 70 December 31

Doosan Power Systems Arabia Company Limited Manufacturing services Saudi Arabia 51 51 December 31

Azul Torre Construction Corporation (*3) Manufacturing Philippines 40 - December 31

Doosan Heavy Industries America Holdings LLC Holdings Company USA 100 100 December 31

Doosan Hydro Technology LLC Manufacturing USA 100 100 December 31

Doosan Engineering & Services LLC Engineering & Services USA 100 100 December 31

Doosan Heavy Industries America LLC Sales USA 100 100 December 31

Doosan ATS America, LLC Engineering & Services USA 100 100 December 31

Doosan Power Service America, LLC Engineering & Services USA 100 - December 31

Doosan GridTech Inc. Software & System

engineering

USA

100 - December 31

Doosan GridTech LLC Software & System

engineering

USA

100 - December 31

Doosan GridTech CA LLC Software & System

engineering

USA

100

- December 31

Doosan Skoda Power s.r.o Manufacturing Czech 100 100 December 31

Skoda Power Private Ltd. Engineering India 100 100 March 31

Doosan Power Systems Pension Trustee Company Ltd. Professional services UK 100 100 December 31

Doosan Power Systems Overseas Investments Ltd. Holdings Company UK 100 100 December 31

Doosan Babcock Ltd. Engineering & Services UK 100 100 December 31

-11-

Ownership ratio of the

Group (%) (*1) Financial

closing

date(*2) Subsidiary Type of business

Location

December

31, 2016

December

31, 2015

Doosan Power Systems Holdings Ltd. Holdings Company UK 100 100 December 31

Doosan Power Systems Europe Limited GmbH Engineering & Services Germany 100 100 December 31

Doosan Power Systems Americas LLC Engineering & Services,

Sales

USA

100 100 December 31

Doosan Lentjes UK Limited Professional services UK 100 100 December 31

Doosan Lentjes GmbH Engineering & Services Germany 99.04 99.04 December 31

Doosan Power Systems S.A. (“DPS S.A.”) Holdings Company Luxembourg 100 100 December 31

Doosan Babcock Energy Technologies (Shanghai) Ltd. Engineering & Services China 100 100 December 31

Doosan Babcock Energy Services (Overseas) Ltd. Engineering & Services UK 100 100 December 31

Doosan Babcock Energy Polska Sp z.o.o Engineering & Services Poland 98.91 98.91 December 31

Doosan Babcock Energy Germany GmbH Engineering & Services Germany 100 100 December 31

Doosan Lentjes Czech s.r.o Professional services Czech 100 100 December 31

AE & E Lentjes Belgie N.V. Dormant Belgium 100 100 December 31

Doosan Power Systems (Scotland) Ltd. Partnership Real estate UK 100 100 December 31

Doosan Babcock General Maintenance Services LLC (*3) Professional services UAE 49 49 December 31

Doosan Babcock WLL(*3) Professional services Qatar 49 49 December 31

KDPP 1st Co.,Ltd. (*4) Asset Securitization Korea - - December 31

KDPP 2nd Co.,Ltd. (*4) Asset Securitization Korea - - December 31

KDPP 3rd Co.,Ltd. (*4) Asset Securitization Korea - - December 31

Happy Tomorrow 20th Co., Ltd.(*4) Asset Securitization Korea - - December 31



Doosan Cuvex Co., Ltd.(*5)

Operation of resort and

golf club

Korea

71.37 100 December 31

Doosan Infracore Co., Ltd. (“DI”) and subsidiaries (*6)

Manufacturing of


Korea, etc.

36.40 36.40 December 31

Doosan Engineering & Construction Co., Ltd.

(“DEC”) and subsidiaries

Construction

and manufacturing

Korea, etc.

80.41 80.01 December 31

Doosan Engine Co., Ltd. (“DE”) and subsidiaries (*6)

Manufacturing of


Korea, etc.

42.66 42.66 December 31

(*1) The ownership percentage represents the equity interest held by the Company

(theparent) in each respective subsidiary, except Doosan Heavy Industries Vietnam

Co., Ltd. of which 24.76% of equity interest are owned by Doosan Engineering &

Construction Co., Ltd. (DEC) and Doosan Cuvex Co., Ltd. of which 19.87%,

22.22%, 2.99% of equity interest are owned by Doosan Infracore Co., Ltd. (“DI”),

Doosan Engineering & Construction Co., Ltd. (DEC), Doosan Engine Co., Ltd.

(“DE”), respectively. Overall, the Group has an effective ownership interest of 95.15%

of the Doosan Heavy Industries Vietnam Co., Ltd. and 52.66% of Doosan Cuvex.,

Ltd.

(*2) Where the reporting date of subsidiaries is not consistent with that of the Company

based on local laws, adjustments have been made to conform to the Company’s

reporting date for preparation of consolidated financial statements.

(*3) Although the Company’s ownership does not exceed 50%, it is classified as a

consolidated subsidiary since the Group is considered to have the voting rights in

the equity’s board of directors, and others.

(*4) The Company assessed that it exercises control over the special purpose entity as

the entity’s activities are substantively governed by the Company.

(*5) Doosan Cuvex Co., Ltd., subsidiary of DEC, is reclassified as the Company’s direct

subsidiaries by stock trading within the Group for the year ended December 31, 2016.

(*6) Although the Company’s ownership interest in the investee is less than a majority,

the Company assessed that it exercises control over the investee based on its

holdings relative to the size and dispersion of ownership interests held by other

equity holders and the voting patterns in previous shareholders’ meetings.

-12-

(3) Main subsidiary’s financial information

Condensed financial information of the Group’s significant consolidated subsidiaries (or

intermediate parent) as of and for the year ended December 31, 2016, is as follows (in

millions of Korean won):

Subsidiary Assets Liabilities Sales

Net

income(loss)

Total

comprehensive

income(loss)

Doosan Heavy Industries Vietnam Co., Ltd. ￦516,090 ￦455,022 ￦263,323 ￦(8,553) ￦(8,553)

HF Controls Corp. 24,296 9,347 14,167 334 334

Doosan Heavy Industries Japan Corp. 26,496 23,458 2,497 150 150

S.C. Doosan IMGB S.A. 141,736 101,666 86,136 (2,335) (2,335) Doosan Construction Site Solutions Vietnam Co., Ltd. 10,564 110 709 (1,833) (1,833)

Doosan Power Systems India Private Ltd. 467,389 365,088 249,454 1,223 1,508

Doosan Heavy Industries Muscat LLC 22,090 22,136 31,552 (409) (409) Doosan Heavy Industries America Holdings LLC 207,432 38,770 2,060 6,529 6,529

Doosan Hydro Technology LLC 34,704 63,572 28,517 (4,595) (4,595)

Doosan Heavy Industries America Corp. 16,248 10,242 3,464 403 403 Doosan Skoda Power s.r.o 611,326 150,003 376,168 66,719 64,873

Doosan Power Systems Overseas Investments Ltd. 75,586 88,747 - (2,865) (2,865)

Doosan Babcock Ltd. 1,044,213 410,554 611,507 (24,578) (86,361) Doosan Power Systems Europe Limited GmbH 185,553 130,467 - (2,042) (2,042)

Doosan Lentjes GmbH 71,833 58,151 32,988 (26,810) (29,488)

DPS S.A. 1,319,255 791,265 - 22,786 22,786 Doosan Babcock Energy Polska Sp z.o.o. 17,959 9,312 29,159 (2,419) (2,540)

Doosan Power Systems (Scotland) Ltd. Partnership 32,174 1,735 - 1,878 1,878

Doosan Cuvex Co., Ltd. 219,043 79,613 27,242 173 (100) Doosan Infracore Co., Ltd. (“DI”) and subsidiaries 10,026,809 6,578,432 5,729,550 115,985 140,897

Doosan Engineering & Construction Co., Ltd. (“DEC”)

and subsidiaries

3,030,035 1,965,359 1,274,566 (357,034) (347,450)

Doosan Engine Co., Ltd. (“DE”) and subsidiaries 1,356,450 822,185 802,917 (181,226) (40,406)

(4) Changes in the scope of consolidation

Changes in the scope of consolidation for the year ended December 31, 2016, are as

follows:

Description Reason

Doosan Power Service America, LLC

Incorporation of new

connections

Establishment of new

corporation

Azul Torre Construction Corporation


connections


corporation

KDPP 2nd Co., Ltd.


connections


corporation

KDPP 3rd Co., Ltd.


connections


corporation

Happy Tomorrow 25th Co., Ltd.


connections


corporation

Happy Tomorrow 27th Co., Ltd.


connections


corporation

Yongin Samga Project 1st LLC Incorporation of new

connections


corporation

DM BEST 2nd Co., Ltd.


connections


corporation

DM BEST 3rd Co., Ltd.


connections


corporation

DM BEST 4th Co., Ltd.


connections


corporation

-13-

Doosan GridTech Inc.


connections

Acquisition of equity

Doosan GridTech LLC


connections

Acquisition of equity

Doosan GridTech CA LLC


connections


corporation

Doosan Infracore North America LLC


connections


corporation

GB-DIBH private placement securities investment trust 1st


connections, Excluded from

consolidation

(*1)

Doosan Infracore Portable Power (Shanghai) Co., Ltd.

Excluded from

consolidation

Merger

Doosan International China Co., Ltd.

Excluded from

consolidation

Merger

Doosan International Manufacturing China Co., Ltd.

Excluded from

consolidation

Liquidation

Doosan Holdings International Ltd.

Excluded from

consolidation

Merger

Doosan Infracore International, Inc.

Excluded from

consolidation

Merger

Doosan Infracore Machine Tools Yantai Co., Ltd.

Excluded from

consolidation

Disposals of business unit

Doosan Infracore Germany GmbH.

Excluded from

consolidation


Doosan Infracore America Corp.

Excluded from

consolidation


SD 1st Co., Ltd.

Excluded from

consolidation

The settlement of

repayment

DS Changwon 1st LLC

Excluded from

consolidation

The settlement of

repayment

DS-Bliss 1st Co., Ltd.

Excluded from

consolidation

The settlement of

repayment

Doosan Cuvex 1st Securitization Specialty LLC

Excluded from

consolidation

The settlement of

repayment

SD 5th Co., Ltd.

Excluded from

consolidation

The settlement of

repayment

DS Public 1st Co., Ltd.

Excluded from

consolidation

The settlement of

repayment

DS Public 2nd Co., Ltd.

Excluded from

consolidation

The settlement of

repayment

(*1) DI, subsidiary, assessed that it exercises control over the trust as the trust’s majority

of profits is vested in DI and it is the company which influences the profits the most.

And it is excluded from consolidation due to disposal as Doosan bobcat’s initial

public offering on November 2016.

-14-

(5) Significant non-controlling interests

Financial information of subsidiaries attributable to significant non-controlling interests

is as follows (in millions of Korean won):

Subsidiary

Net loss attributable

to non-controlling

interests

Cumulative non-

controlling interests

Dividends allocated to

non-controlling

interests Doosan Infracore Co., Ltd.

and subsidiaries

￦67,511

￦2,749,591

￦(18,289)

Doosan Engineering &Construction Co., Ltd.

and subsidiaries

(71,266)

108,064

(26,000)

Doosan Engine Co., Ltd. and subsidiaries.

(49,562)

119,127

-

Doosan Cuvex Co., Ltd. 254 66,091 -

(6) Cash flow information for subsidiaries with significant non-controlling interests

Cash flow information for subsidiaries with significant non-controlling interests is as

follows (in millions of Korean won):

2016

DI and

subsidiaries

DEC and subsidiaries

DE and

subsidiaries Doosan Cuvex

Ⅰ. Net cash flows provided by (used in)

operating activities

￦512,993

￦(100,498)

￦4,542

￦963

Ⅱ. Net cash flow provided by (used in)

investing activities

909,634

537,365

41,426

496

Ⅲ. Net cash flows provided (used in) by

financing activities

(1,454,380)

(465,268)

(18,651)

(11,997)

Ⅳ. Net foreign exchange difference 10,328 86 22 -

Ⅴ. Net increase (decrease) in cash and cash

equivalents (Ⅰ+Ⅱ+Ⅲ+Ⅳ)

(21,425)

(28,315)

27,339

(10,538)

Ⅵ. Cash and cash equivalents as at January 1 560,003 108,204 45,482 19,077

Ⅶ. Cash and cash equivalents as at December 31 ￦538,578 ￦79,889 ￦72,821 ￦8,539

-15-

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Group maintains its official accounting records in Korean won and prepares consolidated

financial statements in conformity with Korean International Financial Reporting Standards

(“K-IFRS”), in the Korean language (Hangul).

(1) Basis of consolidated financial statements

The Company and its subsidiaries (the “Group”) has prepared the consolidated financial

statements in accordance with the Korean International Financial Reporting Standards

(“K-IFRS”).

The principal accounting policies are set out below. Except for the effect of the

Amendments to K-IFRS and new interpretations set out below, the principal accounting

policies used to prepare the consolidated financial statements as of and for the year ended

December 31, 2016 are consistent with the accounting policies used to prepare the

consolidated financial statements as of and for the year ended December 31, 2015.

The accompanying consolidated financial statements have been prepared on the historical

cost basis except for certain non-current assets and financial instruments that are measured

at fair values, as explained in the accounting policies below. Historical cost is based on

the fair values of the consideration given.

1) Accounting standards and interpretations that were newly applied for the year ended

December 31, 2016, and changes in the Group’s accounting policies are as follows:

Amendments to K-IFRS 1110 – Consolidated Financial Statements & K-IFRS 1112

Disclosure of interests in other entities & K-IFRS 1028 Investment in associates

The amendments clarify that in applying the equity method of accounting to an

associate or a joint venture that is an investment entity, an investor may retain the fair

value measurements that the associate or joint venture used for its subsidiaries. The

application of these amendments has no material impact on the disclosures or the

amounts recognized in the Group’s consolidated financial statements.

Amendments to K-IFRS 1111 – Accounting for Acquisitions of Interests in Joint

Operations

The amendments to K-IFRS 1111 provide guidance on how to account for the

acquisition of a joint operation that constitutes a business as defined in K-IFRS 1103

Business Combinations. A joint operator is also required to disclose the relevant

information required by K-IFRS 1103 and other standards for business combinations.

The application of these amendments has no material impact on the disclosures or the

amounts recognized in the Group’s consolidated financial statements.

-16-

Amendments to K-IFRS 1001—Presentation of Financial Statements

The amendments to K-IFRS 1001 clarify the concept of applying materiality in

practice and restrict an entity reducing the understandability of its financial statements

by obscuring material information with immaterial information or by aggregating

material items that have different natures or functions. The application of these

amendments has no material impact on the disclosures or the amounts recognized in

the Group’s consolidated financial statements.

Amendments to K-IFRS 1016 – Property, Plant and Equipment

The amendments to K-IFRS 1016 prohibit the Group from using a revenue-based

depreciation method for items of property, plant and equipment. The application of

these amendments has no material impact on the disclosures or the amounts

recognized in the Group’s consolidated financial statements.

Amendments to K-IFRS 1038 – Intangible Assets

The amendments to K-IFRS 1038 do not allow presumption that revenue is an

appropriate basis for the amortization of intangible assets, which the presumption can

only be limited when the intangible asset is expressed as a measure of revenue or when

it can be demonstrated that revenue and consumption of the economic benefits of the

intangible asset are highly correlated. The application of these amendments has no

material impact on the disclosures or the amounts recognized in the Group’s

consolidated financial statements.

Amendments to K-IFRS 1016 – Property, Plant and Equipment

The amendments to K-IFRS 1016 prohibit the Group from using a revenue-based

depreciation method for items of property, plant and equipment. The application of

these amendments has no material impact on the disclosures or the amounts

recognized in the Group’s consolidated financial statements.

Annual Improvements to K-IFRS 2012-2014 Cycle

The annual improvements include amendments to a number of K-IFRS. The

amendments introduce specific guidance in K-IFRS 1105 Non-current Assets Held for

Sale and Discontinued Operations when an entity reclassifies an asset (or disposal

group) from held for sale to held for distribution to owners (or vice versa); such a

change is considered as a continuation of the original plan of disposal, and not as a

change to a plan of sale. Other amendments in the annual improvements include K-

IFRS 1107 Financial Instruments: Disclosures, K-IFRS 1019 Employee Benefits, and

K-IFRS 1034 Interim Financial Reporting. The application of these amendments has

no material impact on the disclosures or the amounts recognized in the Group’s

consolidated financial statements.

-17-

2) New and revised K-IFRS in issue but not yet effective as of December 31, 2016 are

as follows:

The Group has not applied the following new and revised standards and

interpretations that have been issued, but are not yet effective:

Amendments to K-IFRS 1109 – Financial Instruments

The amendments to K-IFRS 1109 contain the requirements for the classification and

measurement of financial assets and financial liabilities based on a business model

whose objective is achieved both by collecting contractual cash flows and selling

financial assets and based on the contractual terms that give rise on specified dates to

cash flows, impairment methodology based on the expected credit losses, broadened

types of instruments that qualify as hedging instruments, the types of risk components

of non-financial items that are eligible for hedge accounting and change in the hedge

effectiveness test. The amendments are effective for annual periods beginning on or

after January 1, 2018

With respect to the forthcoming implementation of K-IFRS 1109, in the first half year

the Group’s accounting team, through joint efforts with external accounting

specialists, will likely perform a preliminary assessment of the impact of the K-IFRS

1109 on the Group’s consolidated financial statements. In the second half year, the

Group also plans to perform a detailed analysis to test the implementation of K-IFRS

1109 and, if necessary, modifies the existing internal control processes and

accounting systems to fit for the purpose of K-IFRS 1109.

As part of the above process, the Group is in preliminarily assessing the potential

impacts at the date of initial application of K-IFRS 1109 based on the Group’s

financial statements as at December 31, 2016 and the basis of the facts and

circumstances that exist at that date. The Group, therefore, will provide disclosures

in the financial statements as of and for the year ending December 31, 2017 for the

estimated impacts in details.

General impacts per each major category under K-IFRS 1109on the Group’s

consolidated financial statements are as follows:

- The classification of financial instruments by category and expected volatility in

the carrying value of financial instruments (Note 10)

- Expected volatility in loss allowance for account receivables and other

receivables (Note 7)

-18-

Amendments to K-IFRS 1115 – Revenue from Contracts with Customers

The core principle under K-IFRS 1115 is that an entity should recognize revenue to

depict the transfer of promised goods or services to customers in an amount that

reflects the consideration to which the entity expects to be entitled in exchange for

those goods or services. The amendments introduce a five-step approach to revenue

recognition and measurement: 1) Identify the contract with a customer, 2) Identify

the performance obligations in the contract, 3) Determine the transaction price, 4)

Allocate the transaction price to the performance obligations in the contract and 5)

Recognize revenue when (or as) the entity satisfies a performance obligation. This

standard will supersede K-IFRS 1011 - Construction Contracts, K-IFRS 1018 -

Revenue, K-IFRS 2113 - Customer Loyalty Programmes, K-IFRS 2115 - Agreements

for the Construction of Real Estate, K-IFRS 2118 - Transfers of Assets from

Customers and K-IFRS 2031 - Revenue-Barter Transactions Involving Advertising

Services. The amendments are effective for annual periods beginning on or after

January 1, 2018.

As part of the above process, the Group is in preliminarily assessing the potential

impacts at the date of initial application of K-IFRS 1115 based on the Group’s

financial statements as at December 31, 2016 and the basis of the facts and

circumstances that exist at that date. The Group, therefore, will provide disclosures

in the financial statements as of and for the year ending December 31, 2017 for the

estimated impacts in details.

General impact per each major category under K-IFRS 1115 on the Group’s

consolidated financial statements is as follows:

- The timing of revenue to be recognized and expected volatility in amount of

revenue

As at December 31, 2016, meanwhile, sales revenue amounting KRW 4,705,321

million, due from customers for construction work amounting KRW 1,503,395

million, and due to customers for construction work amounting to KRW 667,763

million, respectively, would be affected by the implementation of K-IFRS 1115.

-19-

Amendments to K-IFRS 1102—Share-based Payment

The amendments include: 1) when measuring the fair value of share-based payment,

the effects of vesting and non-vesting conditions on the measurement of cash-settled

share-based payment should be consistent with the measurement of equity-settled

share-based payment, 2) Share-based payment transaction in which the Group settles

the share-based payment arrangement net by withholding a specified portion of the

equity instruments per statutory tax withholding requirements would be classified as

equity-settled in its entirety, if otherwise would be classified as equity-settled without

the net settlement feature, and 3) when a cash-settled share-based payment changes

to an equity-settled share-based payment because of modifications of the terms and

conditions, the original liability recognized is derecognized and the equity-settled

share-based payment is recognized at the modification date fair value. Any difference

between the carrying amount of the liability at the modification date and the amount

recognized in equity at the same date would be recognized in profit and loss

immediately. The amendments are effective for annual periods beginning on or after

January 1, 2018.

Amendments to K-IFRS 1007 – Statement of Cash Flows

The amendments require that changes in liabilities arising from financial activities

are disclosed. The amendments are effective for annual periods beginning on or after

January 1, 2017

Amendments to K-IFRS 1012 – Income Taxes

The amendments clarify that unrealized losses on fixed-rate debt instruments

measured at fair value and measured at cost for tax purposes give rise to a deductible

temporary difference regardless of whether the holder expects to recover the carrying

amount of the debt instrument by sale or by use and that the estimate of probable

future taxable profit may include the recovery of some of assets for more than their

carrying amount. When the Group assesses whether there will be sufficient taxable

profit, the Group should compare the deductible temporary differences with future

taxable profit that excludes tax deductions resulting from the reversal of those

deductible temporary differences. The amendments are effective for annual periods

beginning on or after January 1, 2017.

The group is reviewing the impact on the financial statement from above amendments.

-20-

(2) Basis of Consolidation

The consolidated financial statements comprise the financial statements of the Company

and its subsidiaries as at December 31, 2016. Control is achieved when the Group is

exposed, or has rights, to variable returns from its involvement with the investee and has

the ability to affect those returns through its power over the investee. Specifically, the

Group controls an investee if and only if the Group has:

- Power over the investee (i.e. existing rights that give it the current ability to direct the

relevant activities of the investee)

- Exposure, or rights, to variable returns from its involvement with the investee, and

- The ability to use its power over the investee to affect its returns

When the Group has less than a majority of the voting or similar rights of an investee, the

Group considers all relevant facts and circumstances in assessing whether it has power

over an investee, including:

- The contractual arrangement with the other vote holders of the investee

- Rights arising from other contractual arrangements

- The Group’s voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances

indicate that there are changes to one or more of the three elements of control.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary

and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and

expenses of a subsidiary acquired or disposed of during the year are included in the

statement of profit or loss and the statement of comprehensive income from the date the

Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) or loss are

attributed to the equity holders of the parent of the Group and to the non-controlling

interests, even if this results in the non-controlling interests having a deficit balance. When

necessary, adjustments are made to the financial statements of subsidiaries to bring their

accounting policies into line with the Group’s accounting policies. All intra-group assets

and liabilities, equity, income, expenses and cash flows relating to transactions between

members of the Group are eliminated in full on consolidation.

-21-

A change in the ownership interest of a subsidiary, without a loss of control, is accounted

for as an equity transaction. If the Group loses control over a subsidiary, the Group:

- Derecognizes the assets (including goodwill) and liabilities of the subsidiary

- Derecognizes the carrying amount of any non-controlling interests

- Derecognizes the cumulative translation differences recorded in equity

- Recognizes the fair value of the consideration received

- Recognizes the fair value of any investment retained

- Recognizes any surplus or deficit in profit or loss

- Reclassifies the parent’s share of components previously recognized in OCI to profit

or loss or retained earnings, as appropriate, as would be required if the Group had

directly disposed of the related assets or liabilities

(3) Investments in associates and joint ventures

An associate is an entity over which the Group has significant influence, and is neither a

subsidiary nor an investment in a joint venture. The Group generally holds, directly or

indirectly through subsidiaries, between 20% and 50% of the voting power of the entity.

A joint venture is a type of joint arrangement whereby the parties that have joint control

of the arrangement have rights to the net assets of the joint venture. Joint control is the

contractually agreed sharing of control of an arrangement, which exists only when

decisions about the relevant activities require unanimous consent of the parties sharing

control.

The Group’s investments in its associate and joint venture accounted for using the equity

method. Under the equity method, the investment in an associate or a joint venture is

initially recognized at cost. Goodwill relating to the associate or joint venture is included

in the carrying amount of the investment and is neither amortized nor individually tested

for impairment.

After acquisition, the Group's share of the profit or loss and other comprehensive income

or loss of the associates and jointly controlled entities are recognized as profit or loss and

other comprehensive income or loss and the Group's share of the changes in retained

earnings of the associates and joint ventures are recognized as retained earnings. When

the Group's share of losses of an associates and joint ventures exceeds the Group's interest

in those entities (which includes any long-term interests that, in substance, form part of

the Group's net investment in the associate), the Group discontinues recognizing its share

of further losses. Additional losses are recognized only to the extent that the Group has

incurred legal or constructive obligations or made payments on behalf of the associates

and joint ventures.

Unrealized gains from transactions between the Group and its associates and joint

ventures are eliminated up to the interests in those entities. Unrealized losses are also

eliminated unless evidence of impairment in assets transferred is provided.

When necessary, the Group may revise associates’ and joint ventures’ financial statements,

to apply consistent accounting policies as the Group, prior to applying the equity method

of accounting for its investments in the associates and joint ventures.

-22-

For overseas investees whose financial statements are prepared in foreign currencies, the

equity method of accounting is applied after assets and liabilities are translated in

accordance with the accounting treatments for the translation of the financial statements

of overseas’ subsidiaries for consolidated financial statements. The Group’s proportionate

share of the difference between assets net of liabilities and equity after translating into

Korean Won is accounted for as “increase (decrease) in equity adjustments in equity

method investments” included in accumulated other comprehensive income (loss).

(4) Foreign currency translation

1) Functional currency and presentation currency

The Group’s financial statements are presented in the currency of the primary

economic environment in which it operates (its functional currency). The functional

currency and the presentation currency for the consolidated financial statements of the

Group are Korean won.

2) Transactions and balances

Transactions in currencies other than the entity’s functional currency are recognized

at the rates of exchange prevailing at the dates of the transactions. Foreign currency

gain (loss) from settlements of foreign currency transactions or translation of

monetary items denominated in foreign currencies are recognized in profit or loss

whereas the gain (loss) from qualified cash flow hedge and net investment hedge for

foreign operations is deferred as an equity item.

3) Group companies For the purpose of presenting consolidated financial statements, the assets and

liabilities of the Group’s foreign operations with different functional currencies are

translated into presentation currency of the Group using exchange rates prevailing at

the end of the reporting period. Income and expense items are translated using the

average exchange rates for the period, unless exchange rates fluctuated significantly

during that period, in which case the exchange rates at the dates of the transactions are

used. Exchange differences, if any, are recognized in other comprehensive income or

loss and accumulated in equity (attributed to non-controlling interests as appropriate).

Exchange differences from the net investment in the foreign operation, and

borrowings and other foreign currency instruments designated as hedging instrument

for the net investment in the foreign operation are recognized in other comprehensive

income or loss. On the disposal of a foreign operation resulting in loss of control, all

of the accumulated exchange differences in respect of that operation are reclassified

to profit or loss. Goodwill and fair value adjustments arising from the acquisition of a

foreign operation are treated as assets and liabilities of the foreign operation and

translated at the closing rate.

(5) Cash and cash equivalents

Cash and cash equivalents include cash on hand, demand deposits, short-term, highly

liquid investments with maturities (or date of redemption) of three months or less upon

acquisition. Bank overdraft is classified as short-term borrowings on the consolidated

statements of financial position.

-23-

(6) Financial assets

1) Initial recognition and measurement

Financial assets are classified into the following specified categories: ‘financial assets

at fair value through profit or loss’, ‘loans and receivables’, ‘available-for-sale (“AFS”)

financial assets’, ‘held-to-maturity financial assets’. The classification depends on the

nature and purpose of the financial assets and is determined at the time of initial

recognition.

a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets classified

as held for trading and financial assets designated at financial assets at fair value

through profit or loss upon initial recognition. A financial asset is classified as held

for trading financial assets, if it has been acquired principally for the purpose of

selling or repurchasing in near term. All derivative assets including an embedded

derivative separated from the host contract and accounted for as derivative are

classified as held for trading financial assets unless they are designated as effective

hedging instruments. These categories of assets are classified as current assets or

non-current assets depending on the timing of settlement.

b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or

determinable payments that are not quoted in an active market. Loans and

receivables, with maturities of more than 12 months from the end of the reporting

period, are classified as non-current assets. Otherwise they are classified as current

assets.

c) Available-for-sale financial investments

AFS financial investments are non-derivative financial assets that are designated as

available for sale or are not classified as loans and receivables, held-to-maturity

financial assets or financial assets at fair value through profit or loss. AFS financial

investments are classified as non-current assets unless management has intention

to sell them within 12 months from the end of the reporting period.

d) Held-to-maturity financial assets

Held-to-maturity financial assets are non-derivative financial instruments with

fixed or determinable payments and fixed maturity for which the Group has the

positive intention and ability to hold to maturity. Held-to-maturity financial assets,

with maturities of more than 12 months from the end of the reporting period, are

classified as non-current assets. Otherwise they are classified as current assets.

2) Subsequent measurement

Financial assets are generally recognized on the trade date, which is the date the Group

becomes a party to a contract to purchase or sale of a financial asset. Except for

financial assets at fair value through profit or loss, all financial assets are initially

measured at fair value, plus transaction costs. In the case of financial assets at fair

value through profit or loss, they are initially measured at fair value and related

transaction costs are recognized as expense in the consolidated statement of profit or

loss.

-24-

Financial assets at fair value through profit or loss and AFS financial investments are

subsequently measured at fair value. Loans and receivables and held-to-maturity

investments are measured at amortized cost using the effective interest method

(“EIR”).

Gains or losses arising from changes in fair value of financial assets at fair value

through profit or loss are recognized in the other non-operating income and expense

line item in the consolidated statement of profit or loss. Dividends on financial assets

at fair value through profit or loss are recognized in the finance income when the

Group’s right to receive the dividends is established.

Changes in fair value of monetary and non-monetary financial assets which are

classified as AFS financial investments are recognized in other comprehensive

income or loss. When the investment is disposed of or is determined to be impaired,

the cumulative gain or loss previously accumulated in the equity in reclassified into

other non-operating income and expense in the statement of profit or loss.

Interest from AFS financial investments calculated using the EIR is recognized in

finance income in the consolidated statement of profit or loss. Dividends on AFS

equity instruments are recognized in the finance income when the Group’s right to

receive the dividends is established.

3) Impairment of financial assets

a) Financial assets carried at amortized cost

The Group assesses, at the end of each reporting period, whether there is any

objective evidence that a financial asset is impaired. Financial assets are considered

to be impaired when there is objective evidence that, as a result of one or more

events that occurred after the initial recognition of the financial asset, the estimated

future cash flows of the investment have been affected.

Impairment loss is the difference between the asset’s carrying amount and the

present value of estimated future cash flows, discounted at the financial asset’s

original effective interest rate (EIR) at initial recognition. The carrying amount of

the financial asset is reduced by the impairment loss and the amount of the loss is

recognized in profit or loss. The Group measures impairment loss based on fair

value of financial assets from observable market data.

If, in a subsequent period, the amount of the impairment loss decreases and the

decrease can be related objectively to an event occurring after the impairment was

recognized, the previously recognized impairment loss is reversed and recognized

in profit or loss.

-25-

b) Available-for-sale financial investments

The Group assesses, at the end of each reporting period, whether there is any

objective evidence that a financial asset or group of financial assets is impaired.

For equity investments classified as AFS, a significant or prolonged decline in the

fair value of the security below its cost is considered to be objective evidence of

impairment. If there is objective evidence of impairment on AFS financial

investments, the cumulative loss that has been recognized in other comprehensive

income or loss less any impairment loss previously recognized in profit or loss is

reclassified from equity to profit or loss. Impairment losses recognized in profit or

loss for an investment in an equity instrument classified as AFS are not reversed

through profit or loss. Meanwhile, if, in a subsequent period, the fair value of a debt

instrument classified as AFS increases and the increase can be objectively related

to an event occurring after the impairment loss was recognized in profit or loss, the

impairment loss is reversed through profit or loss.

4) Derecognition

The Group derecognizes a financial asset only when the contractual rights to the cash

flows from the financial asset expire, or when it transfers the rights to receive the

contractual cash flows in a transaction in which all the risks and rewards of ownership

of the financial asset are transferred.

5) Offsetting of financial instruments

Financial assets and financial liabilities are offset as a net amount in the consolidated

statement of financial position when the Group has a legally enforceable right to set

off the recognized amounts of the assets and liabilities and intends to settle on a net

basis, or to realize the assets and the liabilities simultaneously.

(7) Trade receivables

Trade receivables are amounts owed by customer for products and services provided in

the ordinary course of business. Receivables expected to be collected within one year are

classified as current assets. Otherwise they are classified as non-current assets. Trade

receivables are initially measured at fair value and are presented as net of allowance for

doubtful accounts, estimated on an individual basis based on past bad debt experience.

(8) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost of inventories

includes fixed and variable manufacturing overhead costs which are systematically

allocated to inventories by appropriate methods based on each category of inventory. The

cost of inventories is determined by the specific identification method for finished goods,

work-in-process, and materials in transit, and gross average method for all other

inventories.

-26-

The Group periodically reviews changes in net realizable value of inventories (current

replacement cost for raw materials) due to damage, obsolescence, decline in selling prices

and others and recognizes loss on inventory valuation. Loss on inventory valuation is

charged to cost of sales when it is ordinary and to other non-operating expense when it is

extraordinary. When the circumstances that previously caused inventories to be written

down below cost no longer exist and the new market value of inventories subsequently

recovers, the valuation loss is reversed to the extent of the original valuation loss and the

reversal is deducted from cost of sales.

(9) Property, plant and equipment

Property, plant and equipment is stated at cost less subsequent accumulated depreciation

and accumulated impairment losses. When parts of an item of property, plant and

equipment have different useful lives, they are accounted for as separate items (major

components) of property, plant and equipment. The cost of an item of property, plant and

equipment includes expenditure that is directly attributable to the acquisition of the asset

including the initial estimate of the costs of dismantling and removing the item and

restoring the site on which it is located.

Subsequent costs incurred to replace part of previously recognized item of property, plant

and equipment are added to the carrying amount of an asset, or recognized as a separate

asset, if it is probable that future economic benefits associated with the assets will flow

into the Group and the cost of an asset can be measured reliably. The carrying amount of

what was replaced is derecognized. Routine maintenance and repairs are expensed as

incurred.

Depreciation of property, plant and equipment is calculated to the cost of each asset less

residual value using the straight-line method over the estimated useful lives of the assets

as follows:

Useful lives

Buildings 10~48 years Structures 5~40 years

Machinery 2~20 years

Others 2~15 years

If a part of a property, plant and equipment has significant cost in relation to the total cost

property, plant and equipment, it is depreciated separately.

The Group reviews the depreciation method, the estimated useful lives and residual values

of property, plant and equipment at the end of each annual reporting period. If

expectations differ from previous estimates, the changes are accounted for as a change in

an accounting estimate.

-27-

When the carrying amount of property, plant and equipment is higher than the recoverable

amount, the carrying amount is adjusted to the recoverable amount and the difference is

recognized as an impairment loss. Meanwhile, when the recoverable amount subsequently

exceeds the carrying amount of the impaired asset, the excess is recorded as a reversal of

impairment loss to the extent that the asset’s carrying amount does not exceed the carrying

amount that would have been determined, net of depreciation, if no impairment loss had

been recognized. Upon derecognition of a property, plant and equipment, the difference

between the net disposal proceed and carrying amount of the item is recognized in other

non-operating income (expense).

A revaluation surplus is recorded in OCI and credited to the asset revaluation reserve in

equity. However, to the extent that it reverses a revaluation deficit of the same asset

previously recognized in profit or loss, the increase is recognized in profit and loss. A

revaluation deficit is recognized in the statement of profit or loss, except to the extent that

it offsets an existing surplus on the same asset recognized in the asset revaluation reserve.

(10) Intangible assets

Intangible assets are initially measured at cost and are carried at cost less accumulated

amortization and accumulated impairment losses. Subsequent expenditure on an

intangible asset is capitalized only when it is probable that the expected future economic

benefits that are attributable to the asset will increase.

Intangible assets other than goodwill and intangibles with indefinite useful lives are

amortized on a straight-line basis over their estimated useful lives from the date that they

are available for use. The estimated useful lives of the intangible assets are as follows:

However, useful lives of certain trademarks and memberships, which are determined to

be indefinite since there is no foreseeable limit to the period over which the assets are

expected to generate net cash inflows for the Group, are not amortized but tested for

impairment once a year.

Goodwill acquired in a business combination is measured as the excess of the sum of: a)

the consideration transferred, b) the amount of any non-controlling interests in the

acquiree, and c) the fair value of the acquirer's previously held equity interest in the

acquiree (if any); over the net of the acquisition-date amounts of the identifiable assets

acquired and the liabilities assumed and is classified as intangible assets. Goodwill is

tested for impairment annually and carried at cost as established at the date of acquisition

of the business less accumulated impairment losses, if any. Impairment loss recognized

for goodwill is not reversed. For the purpose of impairment testing, goodwill is allocated

to each of the Group’s cash-generating units (or groups of cash-generating units) that is

expected to benefit from the synergies of the combination.

Useful lives Industrial property rights 5~10 years

Development costs 4~12 years

Others 2~20 years

-28-

Expenditures relating to development activities are capitalized when the result of the

development is for the development of new products or substantial improvement of

functions of existing products; there is technical and commercial feasibility of completing

the development; and the Group has the ability to measure reliably the expenditure

attributable to the development. Capitalized development cost include expenditure on

materials, salaries, wages and other employment-related costs of personnel directly

engaged in generating assets and related overhead cost which is systematically allocated.

Capitalized development costs are presented at the acquisition cost less accumulated

amortization and accumulated impairment losses. Capitalized development costs are

amortized using the straight-line method over the estimated useful life and amortization

expenses are included in cost of goods manufactured and amortization in selling and

administrative expenses. The expenditure on research and development which does not

meet conditions noted above is recognized as an expense when it is incurred.

The estimated useful life and amortization method for intangible assets with finite useful

lives are reviewed at the end of each reporting period and for the assets which have been

assessed as having indefinite useful life, that assessment is revisited each period, with the

effect of any changes in estimate being accounted for as a change in accounting estimate.

(11) Investment property

Investment properties are properties held to earn rentals and/or for capital appreciation.

Investment properties are measured initially at cost, including transaction costs.

Subsequent to initial recognition, the book value of investment property is presented at

the cost less accumulated depreciation and accumulated impairment.

While land is not depreciated, building is depreciated using the straight-line method over

the useful lives between 20 and 48 years.

The estimated useful lives, residual values and depreciation method are reviewed at the

end of each reporting period, with the effect of any changes in estimate being accounted

for as a change in accounting estimate.

(12) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of

qualifying assets, which are assets that necessarily take a substantial period of time to get

ready for their intended use, are added to the cost of those assets, until such time as the

assets are substantially ready for their intended use.

-29-

(13) Impairment of non-financial assets

Assets with indefinite useful lives such as goodwill are not amortized but tested for

impairment annually. Assets which are amortized or depreciated are tested for impairment

to determine whether events and circumstances indicating those assets have suffered

impairment exist. Impairment loss is the excess of the carrying amount over recoverable

amount. Recoverable amount is the higher of fair value less costs to sell and value in use.

When it is not possible to estimate the recoverable amount of an individual asset, the

Group estimates the recoverable amount of the cash-generating unit to which the asset

belongs. When a reasonable and consistent basis of allocation can be identified, corporate

assets are also allocated to individual cash-generating units, or otherwise they are

allocated to the smallest group of cash-generating units for which a reasonable and

consistent allocation basis can be identified. Except for goodwill, all non-financial assets

that have incurred impairment are tested for reversal of impairment at the end of each

reporting period.

(14) Borrowings

Borrowings are measured initially at fair value, net of transaction costs and subsequently

at amortized cost using the EIR, with interest expense being recognized on an effective

yield basis. The difference between the amount received and the redemption amount is

amortized using the effective interest method and recognized in profit or loss. Borrowings

are classified as non-current liabilities when the Group has an unconditional right to defer

settlement of the liability for at least twelve months after the end of the reporting period.

Otherwise borrowings are classified as current liabilities.

(15) Compound financial instrument

Compound financial instruments issued by the Group are classified as a financial liability

or an equity instrument in accordance with the substance of the contractual arrangement.

The conversion right of convertible bonds and stock warranties embedded in compound

financial instrument issued by the Group which can, at the option of the holder, be

converted into a fixed number of equity instruments in the Group, is classified as equity.

The liability component of a convertible bonds and bonds with stock warranties is

recognized at the fair value of a similar liability on initial recognition and be measured at

amortized cost by applying the EIR until it is extinguished. The equity component is

measured by deducting the fair value of the liability component from the fair value of the

compound financial instrument as a whole on initial recognition. Any tax effect is also

reflected, and such instrument is not subsequently remeasured.

The conversion right that is an embedded derivative is recognized at the market value of

a similar derivative or at the fair value derived from an appropriate valuation model.

Subsequent changes in fair value of the conversion right are recognized in profit or loss.

-30-

(16) Financial guarantee contracts

The Group has financial guarantee contract liabilities, which are obligations to pay

specific amounts for indemnifying creditors’ loss on insolvency of specific debtors

according to initial or revised contract provisions of liabilities on the payment date.

Financial guarantee contract liabilities are initially measured at their fair value less the

direct transaction cost relating to the issuance. Subsequently, financial guarantee contract

liabilities are measured at the higher of the amount of the obligations under the contract,

as determined in accordance with KIFRS 1037 Provisions, Contingent Liabilities and

Contingent Assets, and the amount initially recognized less the cumulative amortizations

recognized in accordance with the KIFRS 1018 Revenue.

(17) Employee benefits liability

The Group operates various types of benefit plans, and generally makes contributions

calculated based on periodic actuarial calculations to separately administered funds such

as qualifying insurance companies or trust funds.

A defined contribution plan is a post-employment benefit plan, under which the Group

pays fixed contribution to a separately administered fund. The Group does not assume

any legal or constructive obligation to pay the additional contribution even if the fund

does not hold sufficient assets to pay benefits, relating to employee’s service in the current

and prior periods, in full. The contribution is recognized as pension benefit at the date of

payment. If the contribution already paid exceeds the contribution due for services

rendered prior to the end of the reporting period, the Group recognizes such excess as an

asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future

payments or a cash refund.

Defined benefit plans are post-employment benefit plans other than defined contribution

plans. Generally, under the defined benefit plan, amounts to be paid as retirement benefits

are determined by reference to a formula usually based on employees' earnings, years of

service, ages and other considerations. The retirement benefit obligation recognized in

the consolidated statements of financial position represents the present value of the

defined benefit obligation, less fair value of plan assets and adjustment for unrecognized

past service cost. The defined benefit obligation is calculated by an independent actuary

using the projected unit credit method. The present value of the defined benefit obligation

is denominated in the same currency in which the benefits are expected to be paid, and

calculated at the discount rate which is the yield at the reporting date on high quality

corporate bonds that have maturity dates approximating the terms of the Group’s

obligation.

Actuarial gain or loss from changes in actuarial assumptions or differences between

actuarial assumptions and actual results is recognized in other comprehensive income or

loss, which is immediately reflected in retained earnings. Past service cost is directly

recognized in profit or loss in the period the plan amendment or curtailment occurs.

-31-

(18) Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive)

as a result of a past event, it is probable that the Group will be required to settle the

obligation, and a reliable estimate can be made of the amount of the obligation. A

provision is measured using the present value of the cash flows estimated to settle the

present obligation when the effect of the time value of money is material. At the end of

each reporting period, the remaining provision balance is reviewed and assessed to

determine if the current best estimate is being recognized. The increase in provision due

to passage of time is recognized as interest expense. If the existence of an obligation to

transfer economic benefit is no longer probable, the related provision is reversed during

the period.

When some or all of the economic benefits required to settle a provision are expected to

be recovered from a third party, a receivable is recognized as an asset if it is virtually

certain that reimbursement will be received and the amount of the receivable can be

measured reliably. In this case, any income arising from the third party reimbursement is

netted off against the related expense to be recognized in the consolidated statements of

profit or loss from the recognition of provisions.

(19) Leases

Leases are classified as finance leases whenever the terms of the lease transfer

substantially all the risks and rewards of ownership to the lessee. All other leases are

classified as operating leases.

(20) Derivative financial instruments and hedge accounting

Derivatives are initially recognized at fair value at the date the derivative contract is

entered into and are subsequently remeasured to their fair value at the end of each

reporting period. The resulting gain or loss is generally recognized as profit or loss when

it is incurred. However, the effective portion of changes in the fair value of derivatives

that are designated and qualify as cash flow hedges is recognized in other comprehensive

income or loss. The gain or loss relating to the ineffective portion is recognized

immediately in profit or loss.

1) Hedge accounting

The Group operates fair value hedges to avoid the risk of fair value change, which is

incurred from specific risk on assets, liabilities and firm contracts, and cash flow

hedges to avoid the risk of future cash flow change, which is incurred from specific

risk on expecting contracts. At the inception of the hedge relationship, the Group

documents the relationship between the hedging instrument and the hedged item,

along with its risk management objectives and its strategy for undertaking various

hedge transactions. Furthermore, at the inception of the hedge and on an ongoing

basis, the Group assesses whether the hedging instrument is highly effective in

offsetting changes in fair values or cash flows of the hedged item.

-32-

a) Fair value hedges

Changes in the fair value of derivatives that are designated and qualified as fair

value hedges (or gain or loss on foreign currency translation, when a financial

instrument, not derivative is designated as the hedging instrument) are recognized

in profit or loss immediately, together with any changes in the fair value of the

hedged asset or liability that are attributable to the hedged risk.

b) Cash flow hedges

The effective portion of change in the fair value of derivatives that are designated

and qualify as cash flow hedges for decreasing risk incurred from change of future

cash flow on forecast transaction is recognized in other comprehensive income or

loss. Amounts previously recognized in other comprehensive income or loss and

accumulated in equity are reclassified to profit or loss in the periods when the

hedged item is recognized in profit or loss, or is reflected in the carrying amount

of the associated asset or liability when the forecasted transaction occurs. Even

when hedge accounting is discontinued due to the expiration, termination or

exercise of hedging instrument, subsequent accounting treatment of amounts

recognized in other comprehensive income or loss and accumulated in equity is

the same. However, when hedge accounting is discontinued due to forecast

transaction being no longer expected to occur, the gain or loss accumulated in

equity is recognized immediately in profit or loss.

2) Separable embedded derivatives

Embedded derivatives are separated from the host contract and accounted for

separately only if the following criteria has been met: (a) the economic characteristics

and risks of the host contract and the embedded derivatives are not clearly and closely

related to a separate instrument with the same terms as the embedded derivative that

would meet the definition of a derivative, and (b) the hybrid (combined) instrument

is not measured at fair value through profit or loss. Changes in the fair value of

separable embedded derivatives are recognized immediately in profit or loss.

3) Other derivative financial instruments

Derivative financial instruments other than the effective portion of derivative

financial instruments that are designated as the hedging instruments are measured at

fair value. Gain or loss arising from changes in fair value is recognized in profit or

loss.

(21) Dividend

Dividend payable is recognized as liability when declaration of the dividend is approved

in the shareholders’ meeting.

-33-

(22) Issued capital Common stocks are classified as equity, and the incremental costs directly arising from

capital transactions, net of tax are deducted from equity. Preferred stocks are classified as

equity only if the preferred stocks are not redeemable or redeemable solely upon the

Group’s decision, or the distribution of dividends is solely upon the Group's decision.

Once a general meeting of shareholders meeting approves dividends, the Group

recognizes the dividend liability accordingly.

Own equity instruments that are reacquired (treasury shares) are recognized at cost and

deducted from equity. No gain or loss is recognized in profit or loss on the purchase, sale,

issue or cancellation of the Group’s own equity instruments.

(23) Share-based payments

The Group measures the cost of share options granted to employees by reference to the

estimated fair value at the date at which they are granted. The share-based payment

expenses are recognized on a straight-line basis over the vesting period reflecting

expected forfeiture rate. The Group determines the fair value of share option using the

Black-Scholes option pricing model.

(24) Revenue recognition(Excluding construction contract)

Revenue is measured at the fair value of the consideration received or receivable for the

sale of goods and rendering of services arising in the course of the ordinary activities of

the Group. Revenue is reduced for value added tax, estimated customer returns, rebates

and trade discounts and is presented after eliminating intercompany transactions. The

Group recognizes revenue when the amount of revenue can be measured reliably and it is

probable that the economic benefits associated with the transaction will flow to the Group

and when transaction meets the revenue recognition criteria specified by activity. When

measuring revenue, the Group reliably estimates on contingencies related to sales based

on historical data such as customer type, transaction type and trading terms.

1) Sale of goods

Revenue from the sale of goods is recognized when the Group has transferred to the

buyer the significant risks and rewards of ownership of the goods. Revenue is

recognized on initial delivery of the goods net of expected discounts and returns

estimated based on historical data. The Group estimates and recognizes provision for

warranty and sales return arising from sale of goods.

2) Rendering of services

If the outcome of a contract can be reliably measured, contract revenue and contract

cost associated with the construction contract are recognized by reference to the stage

of completion of the contract activity at the end of the reporting period. The stage of

completion of the contract is assessed by reference to the proportion of the actual

contract costs incurred to the costs to complete the contract. Should the construction

contract expect to incur loss (total contract cost exceeds total contract revenue), such

loss is immediately recognized in profit or loss. Revenue from service transactions

other than a construction contract is recognized by using percentage of completion

method.

-34-

3) Royalty revenue

Royalty revenue is recognized on an accrual basis in accordance with the substance

of the relevant agreement.

4) Dividend and Interest revenue

Revenues arising from dividends are recognized when the right to receive the

dividend payment is established. Interest income from a financial asset is recognized

when it is probable that the economic benefits will flow to the Group and the amount

of income can be measured reliably. Interest income is recognized using the effective

interest method.

5) Lease

Lease income is accounted for on a straight-line basis over the lease terms.

(25) Construction contracts

Where the outcome of a construction contract can be estimated reliably, revenue and costs

are recognized by reference to the stage of completion of the contract activity at the end

of the reporting period, measured based on the proportion of contract costs incurred for

work performed to date relative to the estimated total contract costs, except where this

would not be representative of the stage of completion. Variations in contract work,

claims and incentive payments are included to the extent that the amount can be measured

reliably and its receipt is considered probable. Where the outcome of a construction

contract cannot be estimated reliably, contract revenue is recognized to the extent of

contract costs incurred that it is probable will be recoverable. Contract costs are

recognized as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the

expected loss is recognized as an expense immediately.

When contract costs incurred to date plus recognized profits less recognized losses exceed

progress billing, the surplus is shown as amounts due from customers for contract work.

For contracts where progress billings exceed contract costs incurred to date plus

recognized profits less recognized losses, the surplus is shown as the amounts due to

customers for contract work. Amounts received before the related work is performed are

included in the consolidated statement of financial position, as a liability, as advances

received. Amounts billed for work performed but not yet paid by the customer are

included in the consolidated statement of financial position under trade and other

receivables.

-35-

(26) Government grants

Government grants that are earmarked for the acquisition of assets are recognized as a

deduction from the acquisition cost of the received assets or other assets for temporarily

investing received assets before the intended assets are acquired. When the intended

assets are acquired, they are recorded as a deduction from the acquisition cost.

Government grants that have no specific condition for their use are recognized in

operating income when it is directly related to primary operations. If not, government

grants are recognized in other non-operating income. If there are specific expenses related

to government grants, the Group offsets the income from government grants with such

expenses and recognizes the net amount in profit or loss.

(27) Taxes and deferred tax

Income tax expense is composed of current and deferred tax. Current and deferred tax are

recognized in profit or loss, except when they relate to items that are recognized in other

comprehensive income or loss or directly in equity, in which case, the current and deferred

tax are also recognized in other comprehensive income or loss or directly in equity,

respectively.

Income tax (current tax) expense is the sum of corporate tax for each fiscal year and tax

added to corporate tax under corporate income tax law and other applicable laws.

Additional income taxes or tax refunds for the prior periods are included in income tax

expense for the current period when recognized. The Group’s liability for current tax is

calculated using tax rates that have been enacted or substantively enacted by the end of

the reporting period.

Deferred tax is recognized on temporary differences between the carrying amounts of

assets and liabilities in the consolidated financial statements and the corresponding tax

bases used in the computation of taxable income. Deferred tax assets and liabilities are

not recognized if the temporary difference arises from the initial recognition (other than

in a business combination) of other assets and liabilities in a transaction that affects

neither the taxable income nor the accounting income.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply

in the period in which the liability is settled or the asset realized, based on tax rates (and

tax laws) that have been enacted or substantively enacted by the end of the reporting

period.

Deferred tax liabilities are recognized for taxable temporary differences associated with

investments in subsidiaries, joint ventures and associates except where the Group is able

to control the reversal of the temporary difference and it is probable that the temporary

difference will not reverse in the foreseeable future. Deferred tax assets arising from

deductible temporary differences associated with such investments and interests are only

recognized to the extent that it is probable that there will be sufficient taxable income

against which to utilize the benefits of the temporary differences and they are expected to

reverse in the foreseeable future.

-36-

The carrying amount of deferred tax assets is reviewed at the end of each reporting period

and reduced to the extent that it is no longer probable that sufficient taxable income will

be available to allow all or part of the asset to be recovered.

(28) Non-current assets held for sale

Non-current assets and disposal groups are classified as held-for-sale if their carrying

amount will be recovered principally through a sale transaction rather than through

continuing use. Non-current assets (and disposal groups) classified as held for sale are

measured at the lower of their previous carrying amount and fair value less costs to sell

and are no longer depreciated or amortized.

If the fair value less costs to sell of the non-current assets held-for-sale (and disposal

groups) decrease, impairment loss is recognized immediately in profit or loss. A gain

should be recognized for any subsequent increase in fair value less costs to sell of an asset,

but not in excess of the cumulative impairment loss previously recognized.

(29) Operating segments

Operating segments are reported on the same basis as the financial information that is

reported to the management of the Group. The management of the Group is responsible

for the allocation of resources and assessment of performance for the operating segments.

(30) Greenhouse gas emissions

The Group receives free emission rights as a result of emission trading schemes. The

rights are received on an annual basis and, in return, the Group is required to remit rights

equal to its actual emissions. The Group has adopted the net liability approach to the

emission rights granted. Therefore, a provision is recognized only when actual emissions

exceed the emission rights granted and still held. The emission costs are recognized as

other operating costs. Where emission rights are purchased from other parties, they are

recorded at cost, and treated as a reimbursement right, whereby they are matched to the

emission liabilities and re-measured to fair value. The changes in fair value are recognized

in the statement of profit or loss and other comprehensive income.

3. SIGNIFICANT ACCOUNTING JUDGMENTS AND KEY SOURCES OF

ESTIMATION UNCERTAINTIES:

The estimates and underlying assumptions are reviewed on an

ongoing basis. The estimates and underlying assumptions are

based on historical experiences and other factors including

expectation on possible future events. Actual results may differ

from these estimates. The following are critical assumptions and

key sources of estimation uncertainty at the end of reporting

period, that have a significant risk of causing a material

adjustment to the carrying amounts of the Group’s assets and

liabilities within the next financial year.

-37-

(1) Revenue recognition based on percentage of completion

Revenue for construction contracts is recognized using the percentage-of-completion

method, under which revenue is recognized as work progresses in the ratio of actual costs

incurred to estimated total costs. Any changes in the early stages of long-term projects in

the scope and costs of project implementation in the construction period, and in

construction plans may have a significant effect on the amount of revenue recognized.

(2) Impairment of goodwill

Goodwill is tested for impairment annually and when circumstances indicate that the

carrying value may be impaired. Recoverable amount of cash generating unit (CGU) is

calculated based on the value in use, this calculation requires the use of accounting

estimates.

(3) Employee benefit liability

The Group operates a defined benefit plan. Defined benefit liability is calculated by annual

actuarial valuations as of the reporting date. In order to perform the actuarial valuations,

assumptions for discount rates, future salary increases and others are required to be

estimated.

(4) Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive)

as a result of a past event, and if it is probable that an outflow of resources embodying

economic benefits will be required to settle the obligation and if a reliable estimate can be

made of the amount of the obligation. In accordance with the relevant laws and practices,

the estimated amounts may change to prescribe for additional provisions to be recognized

in future periods.

(5) Deferred tax

Recognition and measurement of deferred tax assets and liabilities require judgement of

the Group’s management. Especially, the recognition of deferred tax asset and the scope of

recognition are influenced by assumptions about future circumstances and judgement of

management.

-38-

(6) Impairment of non-financial assets

Impairment exists when the carrying value of an asset or CGU exceeds its recoverable

amount, which is the higher of its fair value less costs of disposal and its value in use. The

fair value less costs of disposal calculation is based on available data from binding sales

transactions, conducted at arm’s length, for similar assets or observable market prices less

incremental costs for disposing of the asset. The value in use calculation is based on a

discounted cash flow (DCF) model. The cash flows are derived from the budget for the

next five years and do not include restructuring activities that the Group is not yet

committed to or significant future investments that will enhance the asset’s performance

of the CGU being tested. The recoverable amount is sensitive to the discount rate used for

the DCF model as well as the expected future cash-inflows and the growth rate used for

extrapolation purposes. The key assumptions used to determine the recoverable amount

for the different CGUs.

4. FINANCIAL RISK MANAGEMENT:

The Group is exposed to various financial risks, such as market (foreign currency risk and

interest rate risk), credit and liquidity, relating to the operations of the Group. The purpose of

risk management policy is to minimize potential risks, which could have adverse effect on

financial performance.

Financial risk management activities are performed by the Treasury department in accordance

with the aforementioned documented risk management policies. In addition, the Group enters

into derivative contracts to hedge against certain risks. The Group is trying to minimize the

effect of financial risks by reorganizing financial risk management policy and monitoring

financial risks regularly.

(1) Market risk

1) Foreign currency risk

The Group’s exposure to the risk of changes in foreign currency exchange rates relates

primarily to the Group’s operating activities and net investments in foreign

subsidiaries. The Group’s objective of foreign currency risk management is to

minimize uncertainty and volatility arising from fluctuations in foreign currency

exchange rates. Foreign currency risk is managed in accordance to the Group’s policy

on foreign currencies, and currency trading for speculative purposes is prohibited.

Foreign currency risk is managed by the Group’s policy on foreign currencies. The

Group’s basis for foreign currency management is to reduce income/loss volatility.

The Group reduces exposure to foreign currency risk by matching the inflow and the

outflow of foreign currencies (natural hedge) and manages foreign currency risk by

using currency derivatives, such as currency forwards, for the remaining exposure.

-39-

The book value of the Group’s monetary assets and liabilities denominated in foreign

currencies, which represents the maximum exposure to foreign currency risk as of

December 31, 2016 and 2015 is as follows (in millions of Korean won):

2016

USD EUR JPY GBP Others (*1) Total

Financial assets ￦1,841,337 ￦256,224 ￦6,528 ￦55,829 ￦560,948 ￦2,720,866

Financial liabilities 2,972,281 562,000 63,879 45,541 152,379 3,796,080

Net assets (liabilities)

￦(1,130,944) ￦(305,776) ￦(57,351) 10,288 408,569 ￦(1,075,214)

2015

USD EUR JPY GBP Others (*1) Total

Financial assets ￦1,855,656 ￦235,622 ￦3,708 ￦43,382 ￦250,720 ￦2,389,088

Financial liabilities 3,156,123 586,422 85,566 46,502 131,460 4,006,073

Net assets (liabilities) ￦(1,300,467) ￦(350,800) ￦(81,858) ￦(3,120) ￦119,260 ￦(1,616,985)

(*1) Others are assets and liabilities denominated in foreign currencies other than

USD, EUR, JPY and GBP.

A sensitivity analysis on the Group’s income before tax for the period, assuming a 10%

increase and decrease in currency exchange rates, as of December 31, 2016 and 2015

is as follows (in millions of Korean won):

2016 2015

10% increase 10% decrease 10% increase

10% decrease

Income before tax impact ￦(107,521) ￦107,521 ￦(161,699) ￦161,699

The above-mentioned sensitivity analysis is based on monetary assets and liabilities

denominated in foreign currencies other than the Group’s functional currency as of

December 31, 2016 and 2015

2) Interest rate risk

Interest rate risk is related to borrowings and bank deposits with floating interest rates,

and related interest income and expense are exposed to interest rate risk. The Group is

exposed to interest rate risk mainly due to its borrowing or deposit with floating

interest rates. The purpose of interest rate risk management is to minimize uncertainty

and financial expense arising from interest rate fluctuation.

-40-

To manage its interest rate risk, the Group minimizes external borrowings using

internal funds and reduces borrowings with high interest rates and maintains an

appropriate balance between borrowings with floating interest rate and fixed-interest

rate and short-term and long-term borrowings. The Group manages its interest rate risk

preemptively through regular monitoring and adjustments to the changing domestic

and overseas markets conditions and nature of its interest rates.

Floating rate financial assets and liabilities exposed to interest rate risk as of December

31, 2016 and 2015 are as follows (in millions of Korean won):

2016 2015

Financial assets ￦187,393 ￦576,278

Financial liabilities 4,129,315 5,469,319

Net assets (liabilities) ￦(3,941,922) ￦(4,893,041)

A sensitivity analysis on the Group’s income before tax for the period, assuming a 1%P

increase and decrease in interest rates, as of December 31, 2016 and 2015 is as follows

(in millions of Korean won):

2016 2015

1%p increase 1% p decrease 1%p Increase 1%p decrease

Income before tax impact ￦(39,419) ￦39,419 ￦(48,930) ￦48,930

3) Price risk

The Group is exposed to equity price risks arising from its listed equity investments

among AFS equity investments. The Group periodically measures the risk as the fair

value or future cash flows of equity investments may fluctuate due to the changes in

market prices. Important investments in the Group’s portfolio are individually

managed, and acquisition and disposal are approved by the Board of Directors.

-41-

(2) Credit risk

The Group is exposed to credit risk that a counterparty will not meet its obligations under

a financial instrument or customer contract, leading to a financial loss. Credit risk arises

from trade and other receivables, held-for-sale financial assets except for equity

instruments, deposits in financial institutions, derivative financial instruments and

financial guarantee contracts.

The Group enters into transactions with customers having met a certain level of credit

quality and maintains policies and procedures on financial assets to manage such risks.

The credit quality of a new customer is assessed based on publicly announced financial

information and the information provided by credit rating agencies. Such assessment is

used as a basis for determining a customer’s credit limit. Furthermore, collaterals and

credit guarantees are obtained as security, if necessary. In addition, the Group periodically

reassesses the credit quality of customers by auditing credit limits and adjusts the amount

covered by collaterals when deemed necessary. The Group also monitors whether the

collection of financial assets have been impaired to take relevant actions.

The following table presents, the carrying amounts of the Group’s financial instruments

that are exposed to credit risk. The carrying amounts indicate maximum exposure of credit

risk (in millions of Korean won).

Description 2016 2015

Loans and other receivables Cash and cash equivalents ￦1,369,501 ￦1,893,008

Short and long- term

financial instruments

244,903

553,225

Trade receivables and

other receivables

3,539,741

4,225,543

Deposits 320,258 253,323

Held-to-maturity financial

assets

6,215

8,350

Available-for-sale financial

assets (excluding equity

securities)

7

7

Derivative financial assets 105,453 88,405

￦5,586,078 ￦7,021,861

In addition to the above, the maximum amount to be paid for the principal debtor related

to financial guarantee contract is described in Note 33.

-42-

The Group’s receivables’ aging analysis as of December 31, 2016 and 2015 is as follows


2016

Before

maturity 0–3 months 3–6 months 6–12 months

More than

12 months Total

Trade receivables ￦970,693 ￦287,507 ￦102,315 ￦179,849 ￦2,051,185 ￦3,591,549

Loans and other

receivables 703,177 103,675 69,029 121,242 1,301,996 2,299,119

Accrued income 33,069 1,728 312 1,241 110,919 147,269

Total ￦1,706,939 ￦392,910 ￦171,656 ￦302,332 ￦3,464,100 ￦6,037,937

2015

Before

maturity 0–3 months 3–6 months 6–12 months

More than

12 months Total

Trade receivables ￦1,292,419 ￦309,832 ￦155,501 ￦175,189 ￦2,416,303 ￦4,349,244

Loans and other

receivables 489,981 270,441 43,350 102,759 1,310,813 2,217,344

Accrued income 37,776 101,233 - - 10,297 149,306

Total ￦1,820,176 ￦681,506 ￦198,851 ￦277,948 ￦3,737,413 ￦6,715,894

An allowance is recognized by applying appropriate allowance rates for receivables that

can be assessed to be impaired individually due to insolvency, bankruptcy and others or

an allowance can be estimated by assessing the cash flow of individual project. A group

of financial assets that are not individually significant and have similar credit risk

characteristics are assessed for impairment on a collective basis based on aging analysis

and the Group’s past experience of receivables collection. AFS financial assets, held-to-

maturity financial assets, deposits in financial institutions and derivative instruments are

individually assessed for impairment.

(3) Liquidity risk

The Group is exposed to liquidity risk that it will encounter difficulties in fulfilling the

obligations associated with its financial liabilities that are settled by delivering cash or

another financial asset.

The Group manages liquidity risk by matching the duration of financial assets and

liabilities through estimating future cash flows from its operating, investing and financing

activities, and securing moderate levels of liquidity in advance.

-43-

A summary of the Group’s non-derivative liabilities maturity as of December 31, 2016

and 2015 is as follows (in millions of Korean won):

2016

Book value

Nominal cash flows according to contract

Total

Less than 1 year

1 year–2 years 2–5 years

More than 5 years

Financial liabilities ￦14,306,493 ￦14,363,506 ￦9,534,429 ￦2,166,790 ￦2,620,976 ￦41,311

Interest on financial liabilities - 596,307 266,818 157,098 171,511 880

Total ￦14,306,493 ￦14,959,813 ￦9,801,247 ￦2,323,888 ￦2,792,487 ￦42,191

2015

Book

Value

Nominal cash flows according to contract

Total

Less than

1 year

1 year–2

years 2–5 years

More than

5 years

Financial liabilities ￦16,209,846 ￦16,245,785 ￦10,045,230 ￦2,266,430 ￦2,098,613 ￦1,835,512

Interest on financial liabilities - 885,032 340,817 188,475 322,449 33,291

Total ￦16,209,846 ￦17,130,817 ￦10,386,047 ￦2,454,905 ￦2,421,062 ￦1,868,803

The contractual amounts of financial liabilities in the above tables are calculated basis on

non-discounted cash flows (including interest expense) and therefore differ from their

book values. Other than the above non-derivative liabilities, the maximum guarantee

amounts based on financial guarantee contracts provided by the Group as of December 31,

2016 are described in Note 33.

(4) Capital risk

The objective of the Group’s capital risk management is to secure its ability to provide

earnings to its shareholders and interested parties and sustain optimal capital structure to

reduce the cost of capital. In order to sustain optimal capital structure, the Group uses a

debt-to-equity ratio similar to other entities in the industry. Debt-to-equity ratio is

calculated by dividing total liabilities by total equity and net borrowings to equity ratio is

calculated by dividing net borrowings by total equity. Net borrowings are calculated by

deducting cash and cash equivalents, short and long term financial instruments from total

borrowings.

-44-

Debt-to-equity ratios and net borrowings-to-equity ratios as of December 31, 2016 and

2015, are as follows (in millions of Korean won):

2016 2015

Total liabilities ￦18,009,737 ￦20,234,033

Total equity 6,822,831 7,026,108

Debt-to-equity ratio 263.96% 287.98%

Cash and cash equivalents and

financial instruments

￦1,614,404 ￦2,446,233

Total borrowings 10,449,563 12,605,543

Net borrowings 8,835,159 10,159,310

Net borrowings-to-equity ratio 129.49% 144.59%

5. RESTRICTED FINANCIAL ASSETS:

Details of restricted financial assets as of December 31, 2016 and 2015, are as follows (in


2016 2015 Restrictions

Cash and cash equivalents ￦8,551 ￦12,271 Collateral for prepayments and others

Short-term financial

instruments

165,958 357,627

Government R&D projects (*1), advanced receipts

from contractors (*2), shared growth fund,

establishment of a pledge right, collateral for long-

term borrowings and others

Long-term financial

instruments

2,071 2,082

Security deposits for maintenance of checking

accounts and others

Deposits 22,020 584

Reserves for repayments related to asset backed loans

Total

￦198,600 ￦372,564

(*1) The amounts are restricted in use and may only be used for specific national R&D

projects.

(*2) The amounts may only be used for designated construction contracts.

-45-

6. INVESTMENT SECURITIES:

(1) Investment securities as of December 31, 2016 and 2015 are summarized as follows (in


Description 2016 2015

Short-term investments in

securities AFS financial assets ￦135,249 ￦441

Held-to-maturity financial assets 6,142 -

Subtotal 141,391 441

Long-term investments in

securities AFS financial assets 286,260 182,070

Held-to-maturity financial assets 73 8,350

Subtotal 286,333 190,420

Total ￦427,724 ￦190,861

(2) Available-for-sale financial assets as at December 31, 2016 and 2015 are as follows

(Korean won in millions):

Description 2016 (*1) 2015

Marketable equity securities Hana Financial Group Inc.

￦123

￦93

Others 621 456

Subtotal 744 549

Non-marketable equity

securities Incheon-Kimpo Expressway

Co., Ltd.

28,480

28,480

Hwaseong City

Expressway Co., Ltd.

9,578

9,578

Kyunggi East&West Circulation

road. Co., Ltd.

2,410

-

Alpha Dome City Co., Ltd. - 16,202

Kangnam Beltway Co., Ltd. 4,937 4,965

Pohang Yeongil New

Port Corporation

44

6,479

Masan Sewage Pipe Co., Ltd. 870 725

S-Y Highway Co., Ltd. 23,929 19,848

Sudokwon Seobu

Expressway Co., Ltd.

9,017

9,174

Daegu South Circulation Road

Corporation

4,351

4,502

UITrans LRT Co., Ltd. 10,575 8,706

Seoul-Munsan Expressway

Co,.Ltd

7,055

1,166

Busan New Port the

2nd Rear Road Co,.Ltd.

4,532

4,532

Kyunggi South Road Co., Ltd. 4,168 4,232

Others 20,648 5,154

Subtotal 130,594 123,744

Other equity investments Lanco Kondapalli Power Ltd. 12,050 12,050

Machinery Financial

Cooperative

6,675

6,363

Construction Guarantee

Cooperative

35,972

31,435

Emerald Technology Ventures 3,762 2,201

-46-

Description 2016 (*1) 2015

Others 6,561 3,490

Subtotal 65,020 55,539

Beneficiary certificate Gold Spoon JY 2nd 60,000 -

Eugene customized special

invest type private placement

investment trust 1st

89,603

-

Others 75,541 2,672

Subtotal 225,144 2,672

Debit securities Regional development

bonds and others

7

7

Total

￦421,509

￦182,511

(*1) As at December 31, 2016, a portion of the Group’s available-for-sale financial assets has

been pledged as collateral for the Group’s borrowings and developers’ project financing

(See Note 34).

-47-

(3) Change in fair value of available-for-sale financial assets for the years ended December

31, 2016 and 2015 are as follows (Korean won in millions):

2016

January 1 Valuation

Reclassified

to profit or

loss December 31

Marketable equity

Securities

￦(4,119)

￦6,758

￦-

￦2,639


Securities

(33,390)

8,911

4,369

(20,110)

Other equity investments 4,817 370 - 5,187

Tax effect 2,148 (4,290) (960) (3,102)

￦(30,544) ￦11,749 ￦3,409 ￦(15,386)

2015

January 1 Valuation

Reclassified

to profit or

loss December 31

Marketable equity

Securities

￦ (3,586)

￦ (533)

￦-

￦ (4,119)


Securities

(1,543)

(65)

(31,782)

(33,390)

Other equity investments 4,705 112 - 4,817

Tax effect 221 68 1,859 2,148

￦(203) ￦(418) ￦(29,923) ￦(30,544)

(4) Held-to-maturity financial assets as at December 31, 2016 and 2015 are as follows

(Korean won in millions):

2016 2015

Current Non-current Current Non-current

Government and

corporate bonds ￦-

￦72

￦-

￦49

Other debt securities 6,142 1 - 8,301

￦6,142 ￦73 ￦- ￦8,350

-48-

7. TRADE AND OTHER RECEIVABLES:

(1) Trade and other receivables as of December 31, 2016 and 2015, consist of the following


2016 2015

Gross

Allowance for doubtful

accounts

Book

value

Gross


accounts

Book

value

Current Asset

Trade receivables ￦3,569,587 ￦(1,491,847) ￦2,077,740 ￦4,332,263 ￦(1,819,469) ￦2,512,794

Other receivables 479,631 (168,899) 310,732 540,335 (150,469) 389,866

Accrued income 147,269 (31,449) 115,820 149,306 (30,239) 119,067

Short-term loans 251,474 (137,380) 114,094 303,467 (125,083) 178,384

Subtotal ￦4,447,961 ￦(1,829,575) ￦2,618,386 ￦5,325,371 ￦(2,125,260) ￦3,200,111

Non-Current Asset

Long-term trade receivables ￦8,969 ￦(76) ￦8,893 ￦5,945 ￦ (76) ￦5,869

Long-term other receivables 8,178 (6,004) 2,174 4,208 (3,875) 333

Long-term loans 1,557,991 (647,704) 910,287 1,366,683 (347,453) 1,019,230

Subtotal 1,575,138 (653,784) 921,354 ￦1,376,836 ￦(351,404) ￦1,025,432

Total ￦6,023,099 ￦(2,483,359) ￦3,539,740 ￦6,702,207 ￦(2,476,664) ￦4,225,543

(2) Changes in allowance for doubtful accounts for the years ended December 31, 2016 and

2015 are summarized as follows (in millions of Korean won):

2016

January 1

Provision

for

(reversal

of) allowance

Write-off of

uncollectible amounts

Changes in

foreign

currency

translation and others December 31

Trade and other receivables:

Trade receivables ￦1,819,545 ￦16,107 ￦(293,393) ￦(50,336) ￦1,491,923

Other receivables 154,344 26,508 (27,991) 22,042 174,903

Accrued income 30,239 1,519 (309) - 31,449

Short and long-term loans 472,536 166,384 134,375 11,789 785,084

2,476,664 210,518 (187,318) (16,505) 2,483,359

Others:

Due from customers for

contract work

85,102

98

(426)

(7,039)

77,735

Deposits 639 1,327 - (6) 1,960

Prepayments 21,721 15,432 (6,235) 2 30,920

107,462 16,857 (6,661) (7,043) 110,615

￦2,584,126 ￦227,375 ￦ (193,979) ￦ (23,548) ￦2,593,974

-49-

2015

January 1

Provision

for

(reversal of)

allowance

Write-off of uncollectible

amounts

Changes in

foreign

currency translation

and others December 31

Trade and other receivables:

Trade receivables ￦ 1,499,011 ￦ 279,259 ￦ (152,587) ￦ 193,862 ￦ 1,819,545

Other receivables 122,895 50,248 (19,288) 489 154,344

Accrued income 1,910 28,329 - - 30,239

Short and long-term loans 273,738 198,599 (503) 702 472,536

1,897,554 556,435 (172,378) 195,053 2,476,664

Others:


contract work

43,639

41,847

(384)

-

85,102

Deposits 1,685 (142) (904) - 639

Prepayments 21,170 549 - 2 21,721

Other non-current assets - 5,970 (5,970) - -

66,494 48,224 (7,258) 2 107,462

￦ 1,964,048 ￦ 604,659 ￦ (179,636) ￦ 195,055 ￦ 2,584,126

Trade and other receivables that are overdue are deemed impaired. An

allowance for doubtful account is individually recognized for

receivables that can be assessed individually for impairment. An

allowance for doubtful account is recognized based on the aging analysis

and the Group’s past collection experience for the group of receivables

that are not individually significant and have similar characteristics.

Allowance for doubtful accounts is included in selling and

administrative expenses and other non-operating expenses in the

consolidated statements of profit or loss.

8. INVENTORIES:

Inventories as of December 31, 2016 and 2015 are summarized as follows (in millions of

Korean won):

2016 2015

Acquisition

cost

Valuation

allowance Book value

Acquisition

cost

Valuation

allowance Book value

Finished Goods ￦430,364 ￦(37,751) ￦392,613 ￦549,210 ￦(51,390) ￦497,820

Merchandise 276,920 (30,848) 246,072 481,645 (30,975) 450,670

Semi-finished goods 30,467 (2) 30,465 38,482 - 38,482

Work-in-process 395,016 (38,725) 356,291 455,094 (26,391) 428,703

Raw materials 493,671 (44,773) 448,898 591,312 (59,503) 531,809

Supplies 23,245 (247) 22,998 23,959 (288) 23,671

Materials in transit 191,231 - 191,231 184,218 - 184,218

Unfinished houses 940 - 940 20 - 20

Land 41,099 - 41,099 41,099 - 41,099

Total ￦1,882,953 ￦(152,346) ￦1,730,607 ￦2,365,039 ￦(168,547) ￦2,196,492

-50-

Reversal of losses on inventory valuation charged to the cost of sales amounted to ￦16,201

million and ￦28,607 million the year ended December 31, 2016 and 2015, respectively.

-51-

9. DERIVATIVES:

(1) Details of gain and loss on valuation of derivatives as of December 31, 2016 and 2015,

are as follows (in thousands of foreign currencies and millions of Korean won):

2016

Buy Sell

Derivative

financial assets

(liabilities)

Gain (loss) on

valuation of

derivative

financial

instruments(*4)

Other

comprehensive

income (loss) (*1)

Firm commitment

asset (liabilities)

(*2) Currency Amount Currency Amount

Foreign currency forwards:

KRW 5,403,197 USD 4,735,416 ￦(286,929) ￦(160,331) ￦(14,167) ￦165,551

KRW 116,591 EUR 87,936 4,221 1,658 3,200 76

KRW 211,493 JPY 19,279,568 1,163 (5,724) (635) (2,049)

KRW 102,930 Others (1,215) (2,258) 682 1,570

USD 2,400,231 KRW 2,750,577 116,432 57,413 44,853 (16,191)

EUR 312,270 KRW 411,561 (10,119) (4,265) (3,121) 3,906

JPY 25,268,718 KRW 304,509 (28,043) (216) (2,882) (348)

Others KRW 149,796 (901) (1,275) (13) (50)

GBP and others EUR and others 7,097 (5,441) (9,979) 2,184

Long-term and Short-term borrowing denominated in

foreign currencies (*3)

KRW - USD - - - -

3,268

Embedded derivatives and others 131 447 131 -

Put back option(see 9-(2)) - (160) - -

Subtotal (198,163) (120,152) 18,069 157,917

Tax effect - - (4,479) -

Adjustments for consolidation - - 14,598 -

Total ￦(198,163) ￦(120,152) ￦28,188 ￦157,917

(*1) In consideration of the amounts adjusted in revenue and cost of goods, the effective

portion of changes in fair value of cash flow hedges of ￦28,188 million, net of tax,

was recognized in accumulated other comprehensive income or loss.

(*2) In consideration of the amounts adjusted in revenue, firm commitment assets of

￦188,501 million and firm commitment liabilities of ￦30,584 million were

recognized in the consolidated statements of financial position by applying a fair

value hedge accounting.

(*3) The Group designated its long-term borrowings denominated in foreign currencies

as hedging instruments to hedge the fair value change of firm commitments.

(*4) It includes the amount classified as discontinued operations income (loss) by the

disposal of business unit and transfer to held-for-sales.

-52-

2015

Buy Sell Derivative

financial assets

(liabilities)

Gain (loss) on

valuation of

derivative financial

instruments

Accumulated other

comprehensive

income (loss) (*1)

Firm

commitment

asset

(liabilities) (*2) Currency Amount Currency Amount

Foreign currency forwards:

KRW 6,575,715 USD 5,879,087 ￦(309,899) ￦(256,150) ￦(33,337) ￦135,560

KRW 229,362 EUR 177,544 (217) 1,130 1,507 (499)

KRW 257,857 JPY 24,461,934 6,051 (7,848) (177) (3,885)

KRW 153,305 Others (1,377) (242) (1,134) 142

USD 2,307,415 KRW 2,603,838 82,276 78,393 43,787 (19,061)

EUR 415,594 KRW 557,771 (16,071) (5,301) (4,998) 5,112

JPY 29,201,574 KRW 337,724 (35,143) 2,295 (8,735) (19)

Others KRW 155,317 1,916 (749) 2,815 (132)

GBP and others EUR and others 3,037 (19,780) (7,632) (698)

Long-term borrowing denominated in foreign currencies (*3)

KRW 210,710 USD 200,000 - - - 23,690

Embedded derivatives and others(*4) (447) 39,412 - -

Put back option(see 9-(2)) (6,800) (6,955) - -

Subtotal (276,674) (175,795) (7,904) 140,210

Tax effect - - 2,096 --

Adjustments for consolidation - - 24,423 -

Total ￦(276,674) ￦(175,795) ￦18,615 ￦140,210

(*1) In consideration of the amounts adjusted in revenue, the effective portion of changes

in fair value of cash flow hedges of ￦18,615 million, net of tax, was recognized in

accumulated other comprehensive income or loss.

(*2) In consideration of the amounts adjusted in revenue, firm commitment assets of

￦185,271 million and firm commitment liabilities of ￦45,061 million were

recognized in the consolidated statements of financial position by applying a fair

value hedge accounting.

(*3) The Group designated its long-term borrowings denominated in foreign currencies

as hedging instruments to hedge the fair value change of firm commitments.

(*4) Represents amounts related to exchange rights on exchangeable bonds issued by the

Company and valuation of the share purchase contract between the Company and

the investor of redeemable convertible preferred stock issued by Doosan

Engineering & Construction Co., Ltd. (“DEC”).

(2) The Group participated in SOC projects and other infrastructure projects including

Shinbundang Line, Shinbundang extension Line, Daegu 4th beltway, Masan Sewer

Pipeline BTL, Suwon-Gwangmyeong Road, etc. as a construction investor. To invite

financial investors, the Group entered into a put option contract (￦36,600 million).

The Group classified the contract as financial derivatives and recognized the fluctuation

of option value as loss on valuation of derivatives (The year ended December 31, 2016:

￦160 million, The year ended December 31, 2015: ￦6,955 million) and derivatives

liabilities (As of December 31, 2016: nil, As of December 31, 2015: ￦6,800 million).

-53-

10. FINANCIAL INSTRUMENTS:

(1) Financial assets as of December 31, 2016 and 2015, are as follows (in millions of Korean

won):

2016

Financial assets at fair

value through

profit or loss

Loans and

receivables

AFS

financial

assets

Held-to-maturity

financial

assets

Derivatives designated

as hedging

instruments

Carrying

amount Fair value

Cash and cash equivalents ￦- ￦1,369,501 ￦- ￦- ￦- ￦1,369,501 ￦1,369,501

Short and long-term

financial instruments - 244,903 - - - 244,903 244,903

Short and long-term

investment in securities - - 421,509 6,215 - 427,724 427,724

Derivative financial assets 64,762 - - - 40,691 105,453 105,453

Trade and other

receivables - 3,539,740 - - - 3,539,740 3,539,740

Deposits - 320,258 - - - 320,258 320,258

Total ￦64,762 ￦5,474,402 ￦421,509 ￦6,215 ￦40,691 ￦6,007,579 ￦6,007,579

2015

Financial

assets at fair

value through profit or loss

Loans and receivables

AFS

financial assets

Held-to-

maturity

financial assets

Derivatives

designated

as hedging instruments

Carrying amount Fair value

Cash and cash equivalents ￦- ￦1,893,008 ￦- ￦- ￦- ￦1,893,008 ￦1,893,008

Short and long-term

financial instruments - 553,225 - - - 553,225 553,225

Short and long-term

investment in securities - - 182,511 8,350 - 190,861 190,861

Derivative financial assets 36,476 - - - 51,929 88,405 88,405

Trade and other

receivables - 4,225,543 - - - 4,225,543 4,225,543

Deposits - 253,323 - - - 253,323 253,323

Total ￦36,476 ￦6,925,099 ￦182,511 ￦8,350 ￦51,929 ￦7,204,365 ￦7,204,365

-54-

(2) Financial liabilities as of December 31, 2016 and 2015, are as follows (in millions of

Korean won):

2016,

Financial

liabilities at fair


Financial

liabilities at amortized cost

Derivatives

designated as

hedging instruments


Trade and other payables ￦- ￦3,341,043 ￦- ￦3,341,043 ￦3,341,043

Borrowings and bonds - 10,392,678 - 10,392,678 10,392,678

Derivative financial

liabilities 39,702 - 263,914 303,616 303,616

Financial guarantee

liabilities - 19,997 - 19,997 19,997

Others - 572,772 - 572,772 572,772

Total ￦39,702 ￦14,326,490 ￦263,914 ￦14,630,106 ￦14,630,106

2015

Financial

liabilities at fair


Financial

liabilities at amortized cost

Derivatives

designated as

hedging instruments


Trade and other payables ￦- ￦3,099,574 ￦- ￦3,099,574 ￦3,099,574

Borrowings and bonds - 12,570,556 - 12,570,556 12,570,556

Derivative financial

liabilities 36,542 - 328,537 365,079 365,079

Financial guarantee

liabilities - 22,699 - 22,699 22,699

Others - 539,716 - 539,716 539,716

Total ￦36,542 ￦16,232,545 ￦328,537 ￦16,597,624 ￦16,597,624

(3) As of December 31, 2016, the Group uses the following hierarchy for determining and

disclosing the fair value of financial instruments by valuation technique. The level of

hierarchy of fair value is as follows:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2: Inputs other than quoted prices that are observable for the asset or liability,

either directly or indirectly

Level 3: Inputs that are not based on observable market data (unobservable inputs)

The fair value of financial instruments traded in active markets is based on quoted market

prices at the dates of the consolidated statements of financial position. These instruments

are included in Level 1. Instruments included in level 1 primarily comprise listed equity

investments classified as trading securities or AFS securities.

-55-

The fair value of financial instruments that are not traded in an active market (for example,

over-the counter derivatives) is determined by using valuation techniques. These valuation

techniques maximize the use of observable market data where it is available and rely as

little as possible on entity-specific estimates. If all significant inputs required to fair value

an instrument are observable, the instrument is included in level 2.

If one or more of the significant inputs are not based on observable market data, the

instrument is included in level 3.

Specific valuation techniques used to value financial instruments include:

- Quoted or dealer price of similar instruments.

- The fair value of forward foreign exchange contracts determined by using forward

exchange rates at the reporting date, with the resulting value discounted to present value.

- Other financial techniques such as discounted cash flow analysis.

As for trade and other receivables, the book value approximates reasonable estimates of

fair value.

The level of fair value measurements of financial instruments as of December 31, 2016

and 2015, are as follows (in millions of Korean won):

2016

Level 1 Level 2 Level 3 Total

Financial assets measured at fair value: Financial assets at fair value through profit or loss ￦- ￦64,762 ￦- ￦64,762 AFS financial assets 90,627 341 137,314 228,282 Derivatives designated as hedging instruments - 40,692 - 40,692

Total ￦90,627 ￦105,795 ￦137,314 ￦333,736

Financial liabilities measured at fair value:

Financial liabilities at fair value through profit or loss ￦- ￦39,702 ￦- ￦39,702 Derivatives designated as hedging instruments - 263,914 - 263,914

Total ￦- ￦303,616 ￦- ￦303,616

2015

Level 1 Level 2 Level 3 Total

Financial assets measured at fair value: Financial assets at fair value through profit or loss ￦- ￦36,476 ￦- ￦36,476 AFS financial assets 2,781 - 126,385 129,166

Derivatives designated as hedging instruments - 51,929 - 51,929

Total ￦2,781 ￦88,405 ￦126,385 ￦217,571

Financial liabilities measured at fair value:

Financial liabilities at fair value through profit or loss ￦- ￦36,542 ￦- ￦36,542 Derivatives designated as hedging instruments - 328,537 - 328,537

Total ￦- ￦365,079 ￦- ￦365,079

-56-

The above tables excludes financial assets and financial liabilities which are not measured

at fair value as differences between the carrying amounts and fair values are not significant.

Assumptions used for the measurement of available-for-sale financial assets at fair value

based on level 3 valuation techniques as at December 31, 2015 are as follows (in millions

of Korean won):

Valuation techniques Discount rate Note

S-Y Expressway

Co., Ltd. and

others

Fair value as a current

exit price model

-

Current share issuance

amount

Daegu South

Circulation

Road Corporation

and others

Dividend discount

model and others

7.00%~14.00%

Expected dividend cash

flow for each financial

period and others

Korea Housing

Guarantee

Co., Ltd.

Shareholder’s

discounted cash flow

model

10.00%

Shareholder’s cash flow

Others

Net asset value

assessment and others

-

Fair value of net asset

and others

Changes in the book value of AFS financial assets that have been rated as Level 3 of fair

value hierarchy for the year ended December 31, 2016 and 2015 are as follows. There is

no transfer between levels of the fair value hierarchy for the year ended December 31,

2016 and 2015 (in millions of Korean won):

January 1

Buy

Sell

Total comprehensive income

Reclass

Net foreign

exchange

difference

Profit for the

year

Other

comprehensi

ve income

December

31

The year ended

December 31, 2016 ￦126,385 ￦10,437 ￦- ￦ (8,403) ￦2,145 ￦7,191 ￦(441)

￦137,314

January 1 Buy Sell

Profit for the

year

Other

Comprehensive

income

Net foreign

exchange

difference

Net foreign

exchange

difference

December

31

The year ended

December 31, 2015 ￦130,721 ￦7,141 ￦(11,553) ￦- ￦60 ￦- ￦16 ￦126,385

-57-

(4) Profit or loss by categories of financial instruments for the year ended December 31, 2016

and 2015 are as follows (in millions of Korean won):

for the year ended December 31, 2016

Profit or loss

Other comprehensive

income (*1)

Interest income

(expense)

Dividend

income

(Reversal of)

allowance

for doubtful

accounts

Impairment

loss on financial

instruments

Gain or loss

on disposal

Gain or loss on financial

guarantee

Net change in

fair value of AFS financial

assets

Financial assets:

Loans and receivables ￦34,508 ￦- ￦(211,846) ￦- ￦(11,359) ￦- ￦-

AFS financial assets 4,633 304 - (30,235) (954) - 36,192 Held-to-maturity

Financial assets 466 - - (2,158) - - -

Total ￦39,607 ￦304 ￦(211,846) ￦(32,393) ￦(12,313) ￦- ￦36,192

Financial liabilities: Financial liabilities at

amortized cost ￦(513,219) ￦- ￦- ￦- ￦ (10,470) ￦ (10,291) ￦-

(*1) Amounts in other comprehensive income or loss exclude deferred tax effect.

for the year ended December 31, 2015

Profit or loss

Other comprehensive

income (*1)

Interest income

(expense)

Dividend

income

(Reversal of)

allowance

for doubtful

accounts

Impairment

loss on financial

instruments

Gain or loss

on disposal

Gain or loss on financial

guarantee

Net change in

fair value of AFS financial

assets

Financial assets:

Loans and receivables ￦43,129 ￦- ￦(466,138) ￦- ￦(12,142) ￦- ￦-

AFS financial assets 2 1,266 - (587) 11,275 - (19,268)

Held-to-maturity

financial assets 1,116 - - - - - -

Total ￦44,247 ￦1,266 ￦(466,138) ￦(587) ￦(867) ￦- ￦(19,268)

Financial liabilities:

Financial liabilities at

amortized cost ￦(612,816) ￦- ￦- ￦- ￦ (1,938) ￦ (18,164) ￦-

(*1) Amounts in other comprehensive income or loss exclude deferred tax effect.

-58-

Gains or losses on translation or transaction of foreign currencies arising from foreign

currency transactions except for derivative financial instruments have been mostly

incurred from financial assets classified as loans and receivables and financial liabilities

measured at amortized cost.

Details of gains and losses on valuation and settlement of derivative financial instruments

for the year ended December 31, 2016 and 2015, are as follows (in millions of Korean

won):

2016 2015

Gain (loss) on

valuation of

derivative

financial

instruments

Gain (loss) on

settlement

of derivative

financial

instruments

Other

comprehensive

income(*1)

Gain (loss) on

valuation of

derivative

financial

instruments

Gain (loss) on

settlement

of derivative

financial

instruments

Other

comprehensive

income(*1)

Derivatives held for trading ￦17,121 ￦(6,166) ￦- ￦64,240 ￦10,599 ￦-

Fair value hedge derivatives (116,978) 5,820 - (226,071) (17,514) -

Cash flow hedge derivatives (20,985) 61,727 25,973 (8,145) 28,258 68,555

Total

￦(120,842) ￦61,381 ￦25,973 ￦(169,976) ￦21,343 ￦68,555

(*1) Other comprehensive income does not reflect corporate tax effect.

Above gains or losses on financial instruments include amounts in selling and

administrative expenses, finance income or cost and other comprehensive income or loss.

(5) Financial assets and financial liabilities subject to an enforceable master netting

arrangement or similar agreement as of December 31, 2016 are as follows (in millions of

Korean won):

Eligible for legal right to offset

Total assets

(liabilities) Offset amount Amount after offset

Derivative financial instrument assets ￦141,875 ￦(54,685) ￦87,190

Derivative financial instrument liabilities (315,692) 54,685 (261,007)

Long-term investment securities 40,000 (40,000) -

Asset-backed loans (40,000) 40,000 -

-59-

11. INVESTMENT IN JOINT VENTURES AND ASSOCIATES:

(1) Investment in joint ventures and associates as of December 31, 2016 and 2015, consists of

the following (in millions of Korean won):

Acquisition cost Book value Net assets

Country of

domicil

e

Equit

y owne

rship

(%) 2016 2015 2016 2015 2016 2015

Associates:

Tamra Offshore

Wind Power Co., Ltd. Korea 36.00 ￦ 11,880 ￦ 9,864 ￦ 9,676 ￦ 9,617 ￦ 9,676 ￦ 9,617

Dalian Samyoung Doosan Metal Product

Co., Ltd. (“DSDMP”) (*1) China 10.80

2,675 2,675 3,044 3,453 3,044 3,453

Shinbundang Railroad Co., Ltd. (*2)

Korea 29.03

50,088 62,552 14,770 26,770 14,770 26,770

Kyunggi Railroad Co.,

Ltd.(*1,2)

Korea 7.35

7,067 7,067 1,893 5,277 1,893 5,277

Neo Trans Co., Ltd. Korea 42.86 43 43 18,990 15,429 18,990 15,429

New Seoul

Railway Corporation(*2)

Korea

25.05

8,794 1,373 7,837 611 7,818 409

KIAMCO(*4) Korea 31.41 23,149 - 23,149 - 23,155 -

Subtotal 103,696 83,574 79,359 61,157 79,346 60,955

Joint ventures:

Haman Industrial Complex

(*2,3)

Korea

80.00

3,600 3,600 - - (1,073) (1,073)

Doosan PSI LLC USA 50.00 1,108 1,108 1,188 1,254 1,188 1,254

Doosan Infracore Liaoning

Machinery Sales Co., Ltd(*4)

China

43.00

355 - 134 - 270 -

Subtotal 5,063 4,708 1,322 1,254 385 181

￦ 108,759 ￦ 88,282 ￦ 80,681 62,411 ￦ 79,731 ￦ 61,136

(*1) Although the Group’s equity interest in the investee is less than 20%, the investee

is classified as an associate considering the exercise of voting rights in the board of

directors.

(*2) Investments in the investee have been provided as collateral in connection with

project financing.

(*3) Although the Group’s equity interest in the investee is more than 50%, the investee

is classified as a joint venture considering the agreement between the shareholders.

(*4) The investee is classified as an associate according to acquisition of shares in 2016.

-60-

(2) Changes in investment in joint ventures and associates for the year

ended December 31, 2016 and 2015 consist of the following (in


2016

January 1, 2016

Acquisition (disposal)

Share of profit (loss)

Increase (decrease)

in equity

of associates Others

December 31, 2016

Associates:

Tamra Offshore Wind Power Co., Ltd ￦9,617 ￦2,016 ￦(1,947) ￦(10) ￦- ￦9,676

DSDMP 3,453 - (310) (99) - 3,044

Shinbundang Railroad Co., Ltd. 26,770 - (12,000) - - 14,770

Kyunggi Railroad Co., Ltd. 5,277 - (3,384) - - 1,893

Neo Trans Co., Ltd 15,429 - 3,561 - - 18,990

New Seoul Railroad Co., Ltd. 611 7,421 (195) - - 7,837

KIAMCO - 23,149 - - - 23,149

Subtotal ￦61,157 ￦32,586 ￦(14,275) ￦(109) ￦- ￦79,359

Joint ventures:

Haman Industrial Complex - - - - - -

Doosan PSI LLC 1,254 - (100) - 34 1,188

Doosan Infracore Liaoning Machinery

Sales Co., Ltd - 355 (233) - 12 134

Subtotal 1,254 355 (333) - 46 1,322

Total ￦62,411 ￦32,941 ￦(14,608) ￦(109) ￦46 ￦80,681

2015

January 1,

2015

Acquisition

(disposal)

Share of profit (loss)

(*1)

Increase

(decrease)

in equity of

associates Others

December

31, 2015

Associates:

Doosan Capital Co., Ltd. ￦48,902 ￦(6,613) ￦(42,389) ￦100 ￦- ￦-

Tamra Offshore Wind Power Co., Ltd 9,673 - (56) - - 9,617

Doosan (China) Financial Leasing Corp. 96,996 - (19,137) - (77,859) -

DSDMP 3,647 - (230) 36 - 3,453

Shinbundang Railroad Co., Ltd. 46,538 - (19,768) - - 26,770

Kyunggi Railroad Co., Ltd. 5,737 - (460) - - 5,277

Neo Trans Co., Ltd 13,335 - 2,094 - - 15,429

New Seoul Railroad Co., Ltd. 727 - (116) - - 611

Subtotal ￦225,555 ￦(6,613) ￦(80,062) ￦136 ￦(77,859) ￦61,157

Joint ventures:

Haman Industrial Complex 1,190 - (1,190) - - -

Doosan PSI LLC - 1,108 79 - 67 1,254

Subtotal 1,190 1,108 (1,111) - 67 1,254

Total ￦226,745 ￦(5,505) ￦(81,173) ￦136 ￦(77,792) ￦62,411

(*1) The above income on equity method investments includes loss

on disposal of investment in associates of ￦40,935 million. With

respect to changes in equity interest resulting from increase in

paid-in capital of associates, the Group recognized income on an

equity method investments of ￦509 million.

-61-

(3) The condensed financial information of the investees as of and for the year ended


2016

Total

assets

Total

liabilities

Sales

Net income

(loss)

Total

comprehensive

income (loss)

Tamra Offshore Wind Power Co., Ltd ￦128,776 ￦101,900 ￦- ￦ (5,411) ￦ (5,411)

DSDMP 45,358 17,174 14,012 (2,871) (3,787)

Shinbundang Railroad Co., Ltd. 1,003,274 952,397 83,493 (41,340) (41,340)

Kyunggi Railroad Co., Ltd 684,400 658,638 26,072 (57,780) (57,780)

Neo Trans Co., Ltd 59,064 14,755 75,890 8,311 8,311

New Seoul Railroad Co., Ltd. 46,715 15,508 - (776) (776)

KIAMCO 73,737 17 - 6 6

Haman Industrial Complex 10,016 11,357 - - -

Doosan PSI LLC 8,306 5,928 2,482 (199) (199)


Sales Co., Ltd

869 242 3,348 (415) (415)

2015

Total

assets

Total

liabilities

Sales

Net income

(loss)

Total

comprehensive

income (loss)

Tamra Offshore Wind Power Co., Ltd ￦90,810 ￦64,095 ￦- ￦(154) ￦(154)

DSDMP 49,609 17,637 21,986 (2,129) (1,799)

Shinbundang Railroad Co., Ltd. 1,009,219 917,002 59,663 (68,094) (68,094)

Kyunggi Railroad Co., Ltd 577,382 510,694 - (12,115) (12,115)

Neo Trans Co., Ltd 44,655 8,656 57,487 4,886 4,886

New Seoul Railroad Co., Ltd. 5,223 3,971 - (357) (357)

Haman Industrial Complex 24,866 27,416 131 (835) (835)

Doosan PSI LLC 3,860 1,353 4,855 158 158

-62-

(4) The following table provides a reconciliation of the summarized financial information of

the associates and joint ventures to the carrying amount of its interest in the associates and

joint ventures (in millions of Korean won):

2016

Adjustment amount

Company (*1)

Net asset (a)

Equity

ownership

(%) (b)

Equity

interest in

the investee

(axb) Difference

Internal

transaction Others Book value

Associates:

Tamra Offshore Wind Power Co., Ltd ₩26,876 36 ₩9,676 ￦- ￦- ￦- ₩9,676

DSDMP 28,184 10.8 3,044 - - - 3,044

Shinbundang Railroad Co., Ltd. 50,877 29.03 14,770 - - - 14,770

Kyunggi Railroad Co., Ltd. 25,762 7.35 1,893 - - - 1,893

Neo Trans Co., Ltd. 44,309 42.86 18,990 - - - 18,990

New Seoul Railway 31,207 25.05 7,818 - - 19 7,837

KIAMCO 73,720 31.41 23,155 - - (6) 23,149

Subtotal 280,935 79,346 - - 13 79,359

Joint ventures:

Doosan PSI LLC 2,387 50 1,188 - - - 1,188


Sales Co., Ltd

627 43 270 - (136) - 134

Subtotal 3,005 1,458 - (136) - 1,322

Total ₩283,940 ₩80,804 ￦- ￦(136) ₩13 ₩80,681

(*1) Adjustments on Haman Industrial Complex were not included as the Company

discontinued recognizing its share of further losses.

2015

Adjustment amount

Company (*1)

Net asset (a)

Equity

ownership

(%) (b)

Equity

interest in

the investee

(axb) Difference

Internal

transaction Others Book value

Associates:

Tamra Offshore Wind Power

Co., Ltd

₩26,715 36 ₩9,617 ₩- ₩- ₩- ₩9,617

DSDMP 31,972 10.80 3,453 - - - 3,453

Shinbundang Railroad Co.,

Ltd.

92,217 29.03 26,770 - - - 26,770

Kyunggi Railroad Co., Ltd. 66,689 7.91 5,277 - - - 5,277

Neo Trans Co., Ltd. 35,999 42.86 15,429 - - - 15,429

New Seoul Railway 1,252 32.65 409 202 - - 611

254,844 60,955 202 - - 61,157

Joint ventures:

Doosan PSI LLC 2,507 50.00 1,254 - - - 1,254

₩257,351 36.00 ₩62,209 ₩202 ₩- ₩- ₩62,411

(*1) The net asset value of Doosan Capital represents only the equity holders of the parent

and the equity interest in the investee was calculated by adding up the equity

ownership of preferred shares.

-63-

12. PROPERTY, PLANT AND EQUIPMENT:

(1) Changes in property, plant and equipment for the year ended December 31, 2016 and 2015

consist of the following (in millions of Korean won):

2016

Land Buildings and

structures Machinery

Tools, furniture,

fixtures and others

Construction in progress Total

As of January 1, 2016 ￦4,415,622 ￦1,426,175 ￦950,431 ￦186,002 ￦228,348 ￦7,206,578

Acquisition/ capital

expenditure

1,494 14,501 26,464 25,626 257,548 325,633

Transfer(*1) (192,754) (23,645) 128,356 5,975 (227,429) (309,497)

Disposals (32,682) (19,927) (9,039) (6,506) (3,756) (71,910)

Depreciation - (74,493) (194,101) (58,994) - (327,588)

Impairments - (5,437) (3,890) (753) - (10,080)

Business transfer(*2) (275,446) (105,550) (46,741) (9,798) (320) (437,855)

Changes in foreign currency

translation and others(*3)

3,086 6,770 5,680 (8,491) (787) 6,258

As of December 31, 2016

￦3,919,320 ￦1,218,394 ￦857,160 ￦133,061 ￦253,604 ￦6,381,539

- Acquisition cost ￦2,512,453 ￦2,117,178 ￦2,744,001 ￦682,091 ￦253,604 ￦8,309,327

- Accumulated depreciation

and impairment

(12,445) (898,784) (1,886,841) (549,030) - (3,347,100)

- Revaluation surplus 1,419,312 - - - - 1,419,312

(*1) The group reclassified a part of land, buildings and structures to investment property

which belongs to CPE business unit which is the Group’s discontinued operating

business unit.

(*2) Decreased due to disposal of HRSG business unit, Machine Tools business

unit and CPE business unit.

(*3) The amount includes the impact on acquisition of Doosan GridTech Inc, which is

newly included as subsidiary.

-64-

2015

Land

Buildings and

structures Machinery

Tools, furniture, fixtures and

others

Construction

in progress Total

As of January 1, 2015 ￦4,072,078 ￦1,613,155 ￦1,062,511 ￦228,076 ￦214,320 ￦7,190,140


expenditure

138,447 6,803 29,807 34,746 239,161 448,964

Transfer(*1) (120,719) (11,938) 127,831 19,862 (225,321) (210,285)

Disposals (12,982) (11,930) (11,453) (3,842) - (40,207)

Depreciation - (86,622) (208,008) (75,680) - (370,310)

Impairments (746) (73,207) (38,326) (17,336) - (129,615)

Revaluation 473,623 - - - - 473,623

Business transfer and others (129,337) (17,292) (12,434) (378) (116) (159,557)


translation and others(*3)

(4,742) 7,206 503 554 304 3,825


￦4,415,622 ￦1,426,175 ￦950,431 ￦186,002 ￦228,348 ￦7,206,578

- Acquisition cost 2,862,653 2,350,329 2,872,214 766,878 228,348 9,080,422

- Accumulated depreciation

and impairment

(1,224) (924,154) (1,921,783) (580,876) - (3,428,037)

- Revaluation surplus 1,554,193 - - - - 1,554,193

As of December 31, 2016, certain property, plant and equipment have been pledged as

collateral for borrowings (See Note 34).

(2) Capitalized borrowing costs for the years ended December 31, 2016 and 2015 are as


2016 2015

Capitalized borrowing costs ￦7,229 ￦2,135

Interest rate of borrowing costs 3.60%~4.47% 3.88% ~ 4.49%

(3) Details of depreciation on property, plant and equipment for the years ended December

31, 2016 and 2015 are as follows (in millions of Korean won):

2016 2015

Cost of sales ￦278,032 ￦320,747

Selling and administrative expenses 22,661 28,247

Research and development costs and others 18,658 20,158

Profit for the year from discontinued operation 8,237 1,158

￦327,588 ￦370,310

-65-

(4) Revaluation of land

The Group’s land is stated as fair value, and the carrying amount of land measured using

the cost model as of December 31, 2016 and December 31, 2015 amounted to

￦2,500,008 million and ￦2,861,429 million, respectively. There are no material

differences between the fair value for the year ended December 31, 2016 and revaluation

book value for the year ended December 31, 2015.

13. INTANGIBLE ASSETS:

(1) Changes in intangible assets for the year ended December 31, 2016 and 2015 are as follows


2016

Goodwill

Industrial

property rights

Development

costs

Other

intangible assets Total

As of January 1, 2016 ￦4,393,647 ￦1,158,682 ￦892,154 ￦213,291 ￦6,657,774


expenditure

- 4 225,633 23,141 248,778

Transfer - - (8,202) 20,276 12,074

Disposal - (4) - (1,406) (1,410)

Amortization - (17,359) (124,854) (61,859) (204,072)

Impairment - - (54,707) (3,572) (58,279)

Business transfer (91,521) (856) (11,501) (11,701) (115,579)

Changes in the scope of

consolidation

29,823 - - 6,799 36,622


translation

28,412 18,994 (314) 23,200 70,292


￦4,360,361 ￦1,159,461 ￦918,209 ￦208,169 ￦6,646,200

Acquisition cost ￦4,397,889 ￦1,332,566 ￦1,422,808 ￦576,004 ￦7,729,267

Accumulated amortization

and impairment loss

(37,528) (173,105) (504,599) (367,835) (1,083,067)

-66-

2015

Goodwill

Industrial

property rights

Development

costs

Other

intangible assets Total

￦4,558,361 ￦1,148,142 ￦898,549 ￦258,293 ￦6,863,345

As of January 1, 2015 - 2,221 236,168 15,568 253,957


expenditure

- 207 (7,181) 45,861 38,887

Transfer - (10) - (2,429) (2,439)

Disposal (63,179) - - - (63,179)

Amortization - (17,270) (123,613) (73,361) (214,244)

Impairment (42,112) - (121,759) (32,959) (196,830)


translation

(59,423) 25,392 9,990 2,318 (21,723)


￦4,393,647 ￦1,158,682 ￦892,154 ￦213,291 ￦6,657,774

Acquisition cost ￦4,433,884 ￦1,307,086 ￦1,575,243 ￦775,001 ￦8,091,214

Accumulated amortization

and impairment loss

(40,237) (148,404) (683,089) (561,710) (1,433,440)

The carrying amounts of intangible assets with indefinite useful lives including goodwill

and others as of December 31, 2016 and December 31, 2015 amounted to ￦5,555,413

million and ￦5,564,098 million, respectively.

(2) Research and development costs expensed as incurred for 2016 and 2015 amounted to

￦242,731 million and ￦332,123 million, respectively.

(3) Capitalized borrowing costs for the years ended December 31, 2016 and 2015 are as


2016 2015

Capitalized borrowing costs ￦12,268 ￦9,051

Interest rate of borrowing costs 3.60% ~ 4.47% 3.88% ~ 4.49%

(4) Details of amortization of intangible assets for the years ended December 31, 2016 and

2015 are as follows (in millions of Korean won):

2016 2015

Cost of sales ￦130,479 ￦134,264


Research and development costs and others 519 568

Profit from a discontinued operation 747 130

￦204,072 ￦214,244

-67-

(5) Carrying amount of goodwill allocated to each cash-generating unit (“CGU”) as at

December 31, 2016 and 2015 are as follows (in millions of Korean won):

2016 2015

Power generation ￦622,246 ￦619,106

Water 6,786 6,803

DEC 60,050 72,781

DI 3,671,279 3,694,957

￦4,360,361 ￦4,393,647

The recoverable amount of CGU is determined based on a value in use calculation, and

major assumptions used as at December 31, 2016 are as follows:

Power

generation Water DEC DI Long-term

average

growth

Rate

2.00% 2.00% 1.00% 2.00%

Discount rate 9.55% 9.55% 10.00% 8.90%~9.40%

A value in use is calculated using pre-tax cash flow projections based on financial budgets

approved by senior management covering a five-year period. The management assessed

the total profit in the budget based on past performances and market growth forecasts.

Cash flows beyond the five-year period are extrapolated using a forecast growth rates,

which do not exceed the long-term average growth rate for the industry where the CGU

operates in and which are consistent with estimations included in industry reports. The

discount rate used is risk adjusted discount rate that reflects relevant risks specific to the

related operating segment.

-68-

14. Investment properties:

Changes in investment properties for the years ended December 31, 2016 and 2015 are as


2016

Land Buildings Total

As at January 1 ￦ 26,357 ￦ 4,159 ￦ 30,516

Acquisitions /

capital expenditures

505

617

1,122

Transfer 209,144 31,088 240,232

Disposals (505) (665) (1,170)

Depreciation - (1,203) (1,203)

Others 802 - 802

As at December 31 ￦ 236,303 ￦ 33,906 ￦ 270,299

Acquisition cost ￦ 236,303 ￦ 58,102 ￦ 294,405

Accumulated depreciation

and impairment loss -

(24,106)

(24,106)

2015

Land Buildings Total

As at January 1 ￦ 37,952 ￦ 30,211 ￦ 68,163

Acquisitions /

capital expenditures

3,660

257

3,917

Transfer (13,743) (23,886) (37,629)

Disposals (1,512) (1,172) (2,684)

Depreciation - (1,251) (1,251)

As at December 31 ￦ 26,357 ￦ 4,159 ￦ 30,516

Acquisition cost ￦ 26,357 ￦ 9,268 ￦ 35,625

Accumulated depreciation

and impairment loss -

(5,109)

(5,109)

Rental income from investment properties for the years ended December 31, 2016 and 2015

are ￦3,115 million and ￦2,070 million, respectively.

-69-

15. BONDS AND BORROWINGS:

(1) Short-term borrowings as of December 31, 2016 and 2015 are as follows (in millions of

Korean won):

Type of borrowings Borrower (*1) Lender

Annual

interest rate (%) as

of December 31,

2016 2016 (*3) 2015

Denominated in

KRW The Company

KDB and others

2.77 ~ 4.80 ￦725,000 ￦1,168,081

Factoring (*2) - 25,790 23,008

DI

Korea Exim Bank and

others

3.30 ~ 5.86 483,027 534,000

DEC

Woori Bank and

others

1.43 ~ 7.95 202,408 481,608

Factoring (*2) - 14,438 76,690

DE KDB and others 3.30 ~ 5.19 44,200 50,000

Cuvex Woori Bank and others 3.62 ~ 5.32 14,000 -

Denominated in

foreign

currencies

The Company

Woori Bank and others 0.10 ~ 11.70

901,698

827,038

DI

Disposal of

receivables in

foreign currency(*2)

-

93,904

84,798

KDB and others 0.72 ~ 12.00 375,233 637,967

DEC KDB and others 0.36 ~ 2.00 5,749 39,868

DE Factoring (*2) - - 6,304

Korea Exim Bank and

others

1.72 ~ 4.99

7,240

13,803

Total ￦2,892,687 ￦3,943,165

(*1) Includes the Company’s overseas subsidiaries and their consolidated subsidiaries.

(*2) As discounting of commercial papers with recourse do not qualify for derecognition

of a financial instrument, the Group continues to recognize the related receivables

and accounted for the related amounts received as short-term borrowings.

(*3) The Group’s PP&E and others have been pledged as collateral for the above

borrowings (See Note 34).

-70-

(2) Details of bonds as of December 31, 2016 and 2015 are as follows (in millions of Korean

won):

Annual

Interest rate (%) 2016 2015

Public subscription bonds 2.38 ~ 5.27 ￦1,802,434 ￦2,532,788

Private subscription bonds (*1) 1.77 ~ 5.50 405,000 340,000

Exchangeable bonds - - 115,656

Convertible bonds (See Note 15-(3)) 3.20 ~ 4.00 152,630 311,112

Bonds with stock warrants

(See Note 15-(4))

3.00

143,423 -

Bonds denominated in foreign

currencies (*2) 2.13 ~ 3.80

737,185 585,999

Subtotal ￦3,240,672 ￦3,885,555

Less: Current portion of long-term bonds (1,462,253) (1,321,578)

Less: Discount on bonds (24,728) (15,993)

Long-term bonds ￦1,753,691 ￦2,547,984

(*1) The Group's PP&E and others have been pledged as collateral for the private

subscription bonds (See Note 34).

(*2) The bonds denominated in foreign currencies are guaranteed by Korea Exim Bank

(See Note 33).

(3) Convertible bonds issued by DEC as of December 31, 2016 are summarized as follows:

Convertible bonds issued in 2014

Issue date Maturity Date Coupon rate YTM Exercise year

Conversion price Issuance value Book value

September 4, 2014 September 4, 2017 4.00% 7.50%

From 1 month after date

of issue to 1 month

before maturity

￦8,190/share ￦190,798 million ￦14,547 million

1) Early redemption

The early redemption right is exercisable as a whole or in part against the par value of

convertible bonds at the interest payment date in 1.5 years and 2.5 years after the date

of issuance of bonds.

2) Redemption at maturity

The coupon rate for the bond is 4.0%. For bonds not converted until maturity,

111.6534% of the principal amount will be paid on September 4, 2017 with a yield to

maturity rate of 7.5%, compounded quarterly.

3) Calculation of conversion price

The conversion price is adjusted when there is an increase in paid-in capital through

issuance of shares at a price lower than the market price, stock dividends, or

capitalization of reserves, before exercising the conversion rights, or when there is an

issuance of stock purchase warrants or debt securities with warrants.

-71-

Convertible bonds issued in 2015

Issue date Maturity Date Coupon rate YTM Exercise year

Conversion price Issuance value Book value

June 11, 2015 June 11, 2018 3.20% 6.50%


of issue to 1 month

before maturity

￦6,000/share ￦143,560 million ￦141,559 million

1) Early redemption


convertible bonds at the interest payment date in 2 years and 2.5 years after the date of

issuance of bonds.


The coupon rate for the bond is 3.2%. For bonds not converted until maturity,

110.8345% of the principal amount will be paid on Jun. 11, 2018 with a yield to

maturity rate of 6.5% compounded quarterly.

3) Calculation of conversion price

The conversion price is adjusted when there is an increase in paid-in capital through


capitalization of reserves, before exercising the conversion rights, or when there is an


Changes in the carrying amount of convertible bonds for the year ended December 31,


January 1 Issuance

Exercise /

amortization December 31

Convertible bonds ￦311,112 ￦(156,976) ￦(1,506) ￦152,630

Redemption premium 35,105 (18,293) (164) 16,648

Discount on bond (9,612) 3,865 2,573 (3,174)

Exchange rights adjustment (28,370) 10,492 7,880 (9,998)

Book value 308,235 (160,912) 8,783 156,106

Consideration for conversion rights

(other capital surplus) 4,163 (1,022) (30) 3,111

As of December 31, 2016, 14.74% of the 84th convertible bonds and 7.27% of the 85th

convertible bonds were converted. 2,896,156 shares and 1,545,853 shares were

respectively issued by exercising exchange rights of convertible bonds.

-72-

(4) As of December 31, 2016, bonds with stock warrants issued by DEC are summarized as


Issue date Maturity Date Coupon rate YTM Exercise year Exercise

price Issuance value

Book value

June 24, 2016 June 24, 2019 3.00% 6.00%


of issue to 1 month

before maturity

￦3,615/share ￦143,019 million ￦134,390million

1) Early redemption


bonds with stock warrants at the interest payment date in 2 years and 2.5 years after the

date of issuance of bonds.


The coupon rate for the bond is 3%. For bonds not converted until maturity, 109.7809%

of the principal amount will be paid on June 24, 2019 with a yield to maturity rate of

6.0% compounded quarterly.

3) Calculation of exercise price

The exercise price is adjusted when there is an increase in paid-in capital through


capitalization of reserves, before exercising the stock warrants, or when there is an


Changes in the carrying amount of bonds with stock warrants for the year ended

December 31, 2016 are as follows (in millions of Korean won):

January 1 Issuance

Exercise /

amortization December 31

Bond with stock warrants ￦- ￦150,000 ￦(6,577) ￦143,423

Redemption premium - 14,671 (661) 14,010

Discount on bond - (6,981) 1,462 (5,519)

Exchange rights adjustment - (22,165) 4,641 (17,524)

Book value - 135,525 (1,135) 134,390

Consideration for stock warrants

rights (other capital surplus) - 5,845 (263) 5,582

-73-

(5) Long-term borrowings as of December 31,2016 and 2015 are as follows (in millions of

Korean won):

Type of borrowings Borrower (*1) Lender

Annual

interest rate (%)as

of December

31,2016

December

31,2016 (*2)

December 31,

2015

Denominated in KRW The Company KDB and others 3.00 ~ 5.02 ￦1,075,903 ￦787,801

DI KDB and others 3.90 ~ 4.98 55,000 300,667

DEC Doosan E&C 2nd Co.,

Ltd.(*2)

6.46, CD+4.73

82,000 102,412

DE KDB and others 3.48 ~ 4.42 75,000 75,000

Denominated in

foreign

currencies

The Company National Bank of

Abu Dhabi and others

2.43 ~10.30

385,912 414,211

DI JP Morgan and 3 others 0.23 ~ 8.00 1,958,087 2,548,131

Subtotal 3,631,903 4,228,222

Less: Current portion of long-term borrowings (1,075,461) (916,961)

Discount on long-term borrowings (21,451) (28,971)

Total

￦2,534,991 ￦3,282,290

(*1) Includes the Company’s overseas subsidiaries and their consolidated subsidiaries.

(*2) The Group’s PP&E and others have been pledged as collateral for the above

borrowings (See Note 34).

(6) Asset-backed securities of the Company and DEC are as follows (in millions of Korean

won):

Company

Lender

Maturity

Discount rate

(%) Amount(*1)

The Company Korea Development Bank and others

2017.03.16~2018.

12.16 3.87 ￦92,000

Korea Development Bank and others

2017.01.27~2018.

04.27 4.21 135,000

Korea Development Bank 2018.06.20 3.29 40,000

Woori Bank 2018.06.20 4.33 30,000

The Korean Teachers' Credit Union

and others

2018.06.20 5.50 50,000

Shinyoung securities 2018.06.20 5.50 30,000

DEC Shinyoung securities and others 2017.03.23 7.30 93,200

Shinyoung securities and others 2017.01.06 7.30 60,000

Shinyoung securities and others 2017.01.24 7.30 76,600

Korea asset securities and others 2017.02.10 7.30 45,000

Korea Development Bank 2017.09.15 8.59 20,500

Meritz Securities Co.,Ltd and others 2017.03.31 5.50 12,000

Subtotal ￦684,300

Less: Current portion of asset-backed securities (435,650)

Discount on asset-backed securities (1,675)

Total ￦246,975

(*1) The Group’s PP&E and others have been pledged as collateral for the above asset-

backed securities (See Note 34).

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16. RETIREMENT BENEFIT OBLIGATION:

The Group operates a defined benefit plan, and the cost of providing benefit under the defined

benefit plan is determined using the projected unit credit method on actuarial valuation of the

present value of its defined benefit obligations.

(1) Details of retirement benefit obligation as of December 31, 2016 and 2015 are as follows


2016, 2015

Present value of defined benefit obligation ￦2,372,555 ￦2,318,673

Fair value of plan assets (*1) (1,506,150) (1,418,480)

Total ￦866,405 ￦900,193

(*1) Include employer contributions of ￦1,470 million and ￦1,696 million to the

National Pension Service as of December 31, 2016 and 2015, respectively.

(2) Expenses recognized in statements of income for the year ended December 31, 2016 and


2016 2015

Current service cost ￦91,571 ￦107,537

Net interest cost 34,466 38,415

Effect of curtailment and settlement (756) 214

Total ￦125,281 ￦146,166

(3) Classification of expenses related to the employee benefit liability for the years ended

December 31, 2016 and 2015 are as follows (in millions of Korean won):

2016 2015

Cost of sales ￦70,841 ￦67,477


Research and development costs 10,117 13,775

Profit(loss) from discontinued operations 5,188 19,329

￦125,281 ￦146,166

-75-

(4) Changes in the present value of the defined benefit obligations for the years ended

December 31, 2016 and 2015 are as follows (in millions of Korean won): 2016 2015

As at January 1 ￦2,318,673 ￦2,418,728

Current service costs 91,571 107,537

Transfer from related parties 2,169 4,249

Transfer to related parties (5,204) (7,431)

Interests 77,712 84,667

Remeasurement gain (loss) in OCI:

Actuarial changes arising from

changes in demographic assumptions (2,529)

(43,318) Actuarial changes arising from changes

in financial assumptions 216,431

(71,019)

Others (13,999) 26,160

Effect of curtailment and settlement (2,137) (8,895)

Contributions by plan participants 2,623 2,611

Benefits paid (110,957) (253,398)

Others (201,798) 58,782

As at December 31 ￦2,372,555 ￦2,318,673

(5) Changes in the fair value of plan assets for the years ended December 31, 2016 and 2015

are as follows (in millions of Korean won): 2016 2015

As at January 1 ￦1,418,480 ￦1,398,119

Expected return on plan assets 43,246 46,252

Transfer from related parties 1,210 2,007

Transfer to related parties (3,570) (2,972)

Remeasurement gain (loss) in OCI 114,808 (50,998)

Contributions by plan participants 2,496 2,486

Contributions by employer 180,479 162,529

Benefits paid (99,538) (162,830)

Effect of curtailment and settlement (1,381) (7,117)

Others (150,080) 31,004

As at December 31 ￦1,506,150 ￦1,418,480

In relation to the defined benefit plans, the reasonable estimates of future employer

contributions during the year 2017 amounts to ￦129,592 million. In addition, the actual

return on plan assets for the years ended December 31, 2016 and 2015 amounts to

￦158,054 million and ￦(-)4,746 million, respectively.

(6) The principal assumptions used in determining employee benefit liability as at December

31, 2016 and 2015 are as follows: 2016 2015

Discount rate 1.30% ~ 7.72% 2.60% ~ 7.73%

Future salary increase rate 2.00% ~ 8.00% 2.00% ~ 8.00%

-76-

(7) Components of plan assets as at December 31, 2016 and 2015 are as follows (in millions

of Korean won): 2016 2015

Equity investments ￦440,389 ￦561,525

Korean government bonds 534,345 418,631

Trust assets and others 531,416 438,324

￦1,506,150 ￦1,418,480

The majority of the employee benefit plan consists of quoted securities in active markets.

(8) Details of a sensitively analysis on the defined benefit obligation for changes in the

significant assumptions as at December 31, 2016 are as follows (in millions of Korean

won): Amount Ratio

Discount rate:

1% increase ￦(260,925) (11.00%)

1% decrease 327,566 13.81%

Future salary increases:

1% increase 49,477 2.09%

1% decrease (44,668) (1.88%)

(9) The maturity profile of the defined benefit obligation as at December 31, 2016 is as follows


Within the next

12 months

Between 1 and

2 years

Between 2 and

5 years

Between 5 and

10 years Total

Amounts ￦130,556 ￦187,352 ￦447,150 ￦755,283 ￦1,520,341

(10) With regard to the defined contribution pension plans, the Group recognized expenses of

￦19,471 million (2015: ￦17,696 million)

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17. PROVISIONS :

Changes in significant provisions for the years ended December 31, 2016 and 2015 are as


2016

January 1

Arising during

the year

Unused amounts

reversed Utilized Others (*1) December 31 Current Non-current

Construction

warranties ￦372,581 ￦109,786 ￦(36,055) ￦(81,125) ￦(24,900) ￦340,287 ￦(116,200) ￦224,087

Returned goods 2,079 1,140 - (858) - 2,361 (2,361) -

￦374,660 ￦110,926 ￦(36,055) ￦(81,983) ￦(24,900) ￦342,648 ￦(118,561) ￦224,087

(*1) Includes gain or loss arising from changes in foreign exchange rates.

2015

January 1

Arising during

the year

Unused amounts

reversed Utilized Others (*1) December 31 Current Non-current

Construction

warranties ￦373,775 ￦101,275 ￦(71,916) ￦(37,368) ￦6,815 ￦372,581 ￦(128,339) ￦244,242

Returned goods 1,197 1,513 (261) (370) - 2,079 (2,079) -

￦374,972 ￦102,788 ￦(72,177) ￦(37,738) ￦6,815 ￦374,660 ￦(130,418) ￦244,242

(*1) Includes gain or loss arising from changes in foreign exchange rates.

The Group estimates expenses required to settle the Group’s obligations on product

warranties, refunds, maintenance and others based on the level of warranty period, historical

experience and other considerations.

18. ISSUED CAPITAL:

The Group is authorized to issue 400,000,000 shares, with a par value of ￦5,000 per share

and the number of ordinary stock issued as of December 31, 2016 and 2015 is 106,158,256.

The number of redeemable convertible preferred stock (RCPS) issued as of December 31,

2016 and 2015 is 13,203,540. The number of shares with limited voting rights under the

Korean Commercial Code as of December 31, 2016 and 2015 as of December 31, 2016 and

2015 is nil and 7,312,505, respectively.

Changes in share capital and share premium for the years ended December 31, 2016 and

2015, are as follows (in millions of Korean won and number of shares):

On December 6, 2014, the Group issued RCPS under the resolution of the Board of

Directors on November 25, 2014 and the details are as follows:

Number of shares Share capital Share premium

Common

shares

Preferred

shares(*1)

Common

shares

Preferred

shares(*1) Total

Common

shares

Preferred

shares(*1) Total

Balance at December 31, 2015 106,158,256 13,203,540 ￦530,791 ￦66,018 ￦596,809 ￦73,011 ￦306,662 ￦379,673

Balance at December 31, 2016 106,158,256 13,203,540 ￦530,791 ￦66,018 ￦596,809 ￦73,011

￦306,662 ￦379,673

-78-

Description

Purpose of issuance Improve the Group’s capital structure

Issued shares Cumulative non-participating preferred stock

Number of issued shares 13,203,540 shares

Value of issued shares ￦28,250 per share

Voting right Preferred stock has one voting right per share, same as common stock,

and when a resolution of shareholders’ meeting is unfavorable to the

preferred stock, such resolution must be also approved at the preferred

stockholders’ meeting.

Dividend right Based on the issue price, 3.3% per year (after 5 years, 0.75% will be

added annually on the index of 5-year average rate of returns posted by

the private bond value appraisal institutions)

Redeemable right ① 1 ~ 5 years: early redemption is available to the extent of 10% of

total preferred stock with 10% plus issuance price.

② Redemption at year 5: redeemable all or some portion of preferred

stock 5 years after the payment date. (At issue price plus 5.48%

per annum less prepaid dividends)

③ 5 ~ 10 years: redeemable with adjusted amount based on the rate

of returns posted by the private bond value appraisal institutions.

Convertible right ① Convertible all or some portion of preferred stocks

② Conversion period: 1~10 years after the payment date

③ Conversion ratio: 1 common stock to 1 preferred stock

The Group has the redeemable right in connection with the above RCPS and there are no

contractual obligations for the Group to pay in cash and/or other financial assets. Therefore,

the Group classified the RCPS as equity.

19. CAPITAL SURPLUS:

Capital surplus as of December 31, 2016 and 2015 is summarized as follows (in millions of

Korean won):

2016 2015

Paid-in capital in excess of par value ￦379,673 ￦379,673

Asset revaluation surplus 594,262 594,262

Other capital surplus 678,900 589,983

Total ￦1,652,835 ￦1,563,918

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20. OTHER COMPONENTS OF EQUITY:

(1) Other components of equity as of December 31, 2016 and 2015 are summarized as


2016 2015

Treasury stock ￦(85,640) ￦(175,901)

Stock options 10,297 11,988

Others 58,070 58,756

Total ￦(17,273) ￦(105,157)

(2) Treasury stocks as at December 31, 2016 and 2015 are as follows (in millions of

Korean won, number of shares):

2016 2015

Number of

shares Amount Number of

shares Amount

Ordinary stock

-

￦-

7,312,505

￦90,261

Preferred stock

3,025,532

85,640

3,025,532

85,640

3,025,532

￦85,640

10,338,037

￦175,901

(3) The Company has granted stock options to its executives. The settlement method for

stock options includes issuance of new shares, issuance of treasury shares or cash

settlement. The type of settlement method chosen is determined based on the Board of

Directors' decision at the time of exercise. These stock options require a vesting

condition of a two year continuous employment from the grant date.

1) The terms and conditions of stock options granted as at December 31, 2016 are

summarized as follows (Korean won in units, shares in units):

Grant date

Number of

shares to be

issued Exercise period Exercise price

Estimated

fair value as of

the grant date

2007.03.16 6,800 2010.03.17 ~ 2017.03.16 ￦50,200 ￦22,564

2008.03.21 13,400 2011.03.21 ~ 2018.03.20 121,200 49,565

2009.03.27 10,900 2012.03.27 ~ 2019.03.26 73,000 32,595

2010.03.26 26,800 2013.03.26 ~ 2020.03.25 90,100 41,077

2011.03.25 50,500 2014.03.25 ~ 2021.03.24 65,700 24,642

2012.03.30 114,800 2015.03.30 ~ 2022.03.29 66,800 16,337

2013.03.29 201,000 2016.03.29 ~ 2023.03.28 44,900 10,860

2014.03.28 342,300 2017.03.28 ~ 2024.03.27 34,550 7,948

766,500

-80-

2) Change in the stock options for the year ended December 31, 2016 is summarized

as follows (in millions of Korean won, shares in units):

Number of shares to be issued

Grant

date

January 1

Newly granted

Retired

December 31

2006.02.27 2,600 - (2,600) -

2007.03.16 8,600 - (1,800) 6,800

2008.03.21 17,400 - (4,000) 13,400

2009.03.27 13,200 - (2,300) 10,900

2010.03.26 29,600 - (2,800) 26,800

2011.03.25 59,900 - (9,400) 50,500

2012.03.30 143,200 - (28,400) 114,800

2013.03.29 279,900 - (78,900) 201,000

2014.03.28 342,300 - - 342,300

896,700 - (130,200) 766,500

Valuation

Grant date January 1 Newly granted Retired December 31

2006.02.27 ￦33 ￦- ￦(33) ￦-

2007.03.16 194 - (41) 153

2008.03.21 863 - (198) 665

2009.03.27 430 - (75) 355

2010.03.26 1,216 - (115) 1,101

2011.03.25 1,477 - (232) 1,245

2012.03.30 2,339 - (464) 1,875

2013.03.29 3,040 - (857) 2,183

2014.03.28 2,396 324 - 2,720

￦11,988 ￦324 ￦(2,015) ￦10,297

The Company’s weighted average share prices at the exercise date for the years ended

December 31, 2016 and 2015 are ￦23,568 and ￦24,195, respectively. The

Company’s weighted average expected durations of share based payment for December

31, 2016 and 2015 are 0.15 years and 0.8 years, respectively.

Compensation expenses associated with stock options for the years ended December 31,

2016 and 2015 are ￦324 million and ￦985 million, respectively, and no

compensation expenses are expected to be recognized in the future periods.

-81-

3) The estimated fair value was calculated using the modified fair value method and

assumptions applied to this method are summarized as follows:

Grant date

Risk free rate

(*1)

Expected

exercise period

Expected

volatility

Expected

dividend

yield

2006.02.27 5.01% 3 years 53.87% 1.69%

2007.03.16 4.79% 3 years 49.33% 5.67%

2008.03.21 5.25% 3 years 56.02% 7.33%

2009.03.27 3.71% 3 years 65.15% 9.00%

2010.03.26 3.82% 3 years 66.45% 10.00%

2011.03.25 3.66% 3 years 53.12% 10.00%

2012.03.30 3.57% 3 years 38.21% 13.33%

2013.03.29 2.45% 3 years 35.98% 15.00%

2014.03.28 2.88% 3 years 34.72% 15.00%

(*1) Based on a three-year Treasury bond yield rate.

21. ACCUMULATED OTHER COMPREHENSIVE INCOME:

(1) Accumulated other comprehensive income as of December 31, 2016 and 2015 is

summarized as follows (in millions of Korean won):

2016 2015

Loss on valuation of AFS securities ￦(15,386) ￦(30,544)

Gain (loss) on valuation of derivative financial

instruments 26,569 18,615

Change in equity of equity method investments 1,285 1,337

Gain on revaluation of land 977,800 1,014,673

Loss on translation of foreign operations (451,486) (492,069)

Total ￦538,782 ￦512,012

-82-

(2) Details of income taxes on OCI items directly reflected in equity for the years ended

December 31, 2016 and 2015 are as follows (Korean won in millions):

2016

Balance before

tax Tax effect

Balance after

tax

Loss on valuation of

available-for-sale financial assets ￦(7,253)

￦(8,133)

￦(15,386)

Gain on valuation of

derivative financial instruments 32,777

(6,208)

26,569

Change in equity of

equity method investments 1,386 (101)

1,285

Gain on revaluation of land 1,312,950 (335,150) 977,800

Loss on translation of foreign operations (451,486) - (451,486)

￦888,374 ￦(349,592) ￦538,782

2015

Balance before

tax Tax effect

Balance after

tax

Loss on valuation of

available-for-sale financial assets ￦32,400)

￦1,856

￦(30,544)

Gain on valuation of

derivative financial instruments 21,064

(2,449)

18,615

Change in equity of

equity method investments 1,438 (101)

1,337

Gain on revaluation of land 1,342,013 (327,340) 1,014,673

Loss on translation of foreign operations (492,069) - (492,069)

￦840,046 ￦(328,034) ￦512,012

-83-

22. RETAINED EARNINGS:

(1) Retained earnings as of December 31, 2016 and 2015 are as follows (in millions of Korean

won):

2016 2015

Legal reserve ￦127,568 ￦117,868

Voluntary reserve 776,561 1,079,588

Unappropriated retained earnings (199,621) (184,368)

Total ￦704,508 ￦1,013,088

(2) Details of dividends for the years ended December 31, 2016 and 2015 are as follows:

2016 2015 (*1)

Common

stock

Preferred

stock

Common

stock

Preferred

stock (*2)

Number of shares 106,158,256

shares

13,203,540

shares

98,845,751

shares

13,203,540

shares

Par value per share

(Korean won in units) ￦5,000

￦5,000

￦5,000

￦5,000

Par value dividend rate 11.00% 18.60% 17.00% 18.60%

Dividends per share

(Korean won in units) ￦550.00

￦932.25

￦850.00

￦932.25

Dividends

(Korean won in millions) ￦58,387

￦12,309

￦84,019

￦12,309

(*1) Represents the amount proposed prior to the date of approval of issuance of

financial statements, but not recognized as appropriations of retained earnings on

the financial statements as at the reporting date.

The Company paid dividends for the year ended December 31, 2015 in April 2016, and

dividends for the year ended December 31, 2016 are expected to be paid in April 2017.

(3) Pay-out ratio and dividend yield ratio for the years ended December 31, 2016 and 2015

are as follows:

2016 2015

Common

stock

Preferred

stock

Common

stock

Preferred

stock

Pay-out ratio

Dividends / Profit for

the year attributable

to the equity holders

of the parent

(*1)

(*1)

(*1)

(*1)

Dividend

yield ratio

Dividends per share /

Share price at the

reporting date

2.02%

(*2) 4.13%

(*2)

(*1) The Group did not calculate the pay-out ratio for 2016 and 2015 as the Group recorded

loss for the year.

(*2) The Group did not calculate the dividend yield ratio for 2016 and 2015 as the fair value

of the preferred stock is not exist.

-84-

23. OTHER NON-CONTROLLING INTERESTS:

(1) Details of hybrid instruments issued by DI classified as equity as of December 31, 2016

are as follows:

Description

Issue date Issue date October 5, 2012

Issue price USD 500,000,000

Maturity 30 years and automatic revolving

Dividend

Amount: 3.25% at par value, resets every 5 years, and 5% and 2% will

be added after 5 and 7 years, respectively, according to a “Step up”

clause.

Payment: semi-annually in arrears, optional deferral of distributions is

available.

Others

DI can exercise a call option on the instrument 5 years after the issue

date and every dividend payment date afterwards.

Investors can exercise a put option on the instrument to Core Partners

Limited, an SPE, if DI does not exercise its call option.

If investors exercise their put option and Core Partners Limited, an SPE, acquires the

instruments after 5 years since the issue date, the SPE has a right to put the instruments

back to DI (the “Stock Exchange Right”) under which the SPE can exchange a unit of

the instrument with a par value of $15.4 for one share of DI’s common stock. The hybrid

instruments are classified as equity as of December 31, 2016 as they do not contain a

contractual obligation for DI to settle in cash and the Stock Exchange Right confers a

right to receive a fixed number of DI’s common stock at the issue date.

Details of hybrid instruments issued by DPS.S.A classified as equity as of December 31,

2016 are as follows:

Description

Issue date December, 3, 2015

Issue price USD 300,000,000

Maturity 30 years and automatic revolving

Dividend

Amount: 2.50% at par value, resets once after 3 years, and 1.3% will

be added after 3 years, according to a “Step up” clause.

Payment: semi-annually in arrears, optional deferral of distributions

is available.

Others

DPS.S.A can exercise a call option on the instrument 3 years after the

issue date

The guarantee financial institution, Korea Exim Bank has to retain all

of the hybrid instruments owned by investors, if DPS.S.A does not

exercise its call option.

-85-

If Korea Exim Bank gets to retain the hybrid instruments as the investors exercise the

non-call put rights after 3 years, Korea Exim Bank is awarded exchange rights, which

allow an exchange of the hybrid instruments with equity shares of the Company. Korea

Exim Bank, when it elects to exercise the exchange rights, is entitled to either i) an

exchange of par value of USD 19.1 on the hybrid instrument with one share of common

stock, or ii) a cash settlement at the issue price of USD 300 million, at the Company’s

decision. In this regard, the Company has provided as collateral 75,509,366 shares of DI

stock and 29,650,000 shares of DE stock to Korea Exim Bank. The Company assessed

that the hybrid instruments are equity securities as the instruments are exchangeable with

the Company’s equity securities or settled in cash at the Company’s decision when the

exchange rights are exercised by Korea Exim Bank.

(2) Details of redeemable convertible preferred stock issued by DEC are as follows:

Description

Issue date December 16, 2013

Purpose of issuance To obtain liquidity and to improve the financial structure

Issued shares Cumulative non-participating preferred stock

Number of issued shares 22,727,272 shares

Value of issued shares ￦17,600 per share

Voting right

No voting right is awarded. However, in the case where no dividend for

preferred stock is declared at the shareholders’ meeting, the preferred

shareholders are awarded one voting right per share from the next

shareholders’ meeting up to the shareholders’ meeting where dividend

payment for preferred stock is declared.

Dividend rate Based on the issue price, 6.5% per year

Redemption right

Redemption: On December 16, 2016, if there is profit available for dividends,

DEC can redeem all or some portion of preferred stock.

Early redemption: On December 16, 2015, if there is profit available for

dividends, DEC can redeem all or some portion of preferred stock (limited to

30% of total issued amount).

Conversion right

Conversion right: Both preferred stockholders and DEC hold conversion

rights. However, only preferred stockholders may exercise early conversion

rights.

Conversion period: From March 16, 2017 to March 15, 2018

Early conversion: Preferred stockholders can convert on December 16, 2015

and 2 business days prior to such date

Conversion ratio: 1 common stock per 1 preferred stock

The Group has the redemption rights in connection with the above redeemable

convertible preferred stock. As the Group has no contractual obligation to settle in cash

or other financial assets, the redeemable convertible preferred stock is classified as equity

securities. In the year ended December 31, 2016, the Company purchased whole amount

of convertible preferred stock. It doesn’t not appear in non-controlling interest, as netting.

-86-

24. SEGMENT INFORMATION:

(1) The reportable business segments of the Group and major products and services by

segments are as follows:

Business segment Main products and services

Power generation NSSS, BOP, turbine and others

Water Seawater desalination plants and water treatment systems

Industrial plants Container handling cranes, national defense service and others

Castings & forgings

Power generation components, shipbuilding components, iron & steel

making components, mold & tool steel and petrochemical & industrial

components

Construction Plant, civil engineering, architecture

Wholesale and retail Purchasing agent service

DI

Internal combustion engines, and various construction machinery,

transport equipment and others

DE

Marine engines, internal combustion engine, internal combustion

generator, emergency generator for nuclear power plant and others

DEC Apartment building and others

Cuvex Operation of resort and golf club

(2) Summarized financial information by business segments for the year ended December

31, 2016 and 2015 is as follows (in millions of Korean won):

2016

Sales Intercompany Net sales

Operating

income(loss)

Net income

(loss)

Power generation ￦5,240,962 ￦(309,250) ￦4,931,712 ￦265,434 ￦(94,010)

Water 372,408 (12,137) 360,271 (12,422) (56,228)

Industrial plants 56,430 - 56,430 2,010 (35,307)

Castings & forgings 435,790 (133,578) 302,212 (4,044) (32,742)

Construction 439,326 (4) 439,322 34,509 (7,490)

Wholesale and retail 8,730 (7,110) 1,620 629 2,603

DI 7,953,616 (2,225,276) 5,728,340 490,818 115,985

DE 818,222 (16,758) 801,464 4,237 (181,226)

DEC 1,274,566 (22,054) 1,252,512 12,795 (357,034)

Cuvex 27,242 (8,444) 18,798 88 173

Subtotal 16,627,292 (2,734,611) 13,892,681 794,054 (645,276)

Consolidation adjustments (2,734,611) 2,734,611 - (2,881) 429,751

Total

￦13,892,681 ￦- ￦13,892,681 ￦791,173 ￦(215,525)

-87-

2015

Sales Intercompany Net sales

Operating

income(loss)

Net income

(loss)

Power generation ￦5,615,766 ￦(320,123) ￦5,295,643 ￦258,927 ￦14,507

Water 477,627 (16,449) 461,178 (28,502) (50,024)

Industrial plants 69,070 (20) 69,050 15,943 (28,667)

Castings & forgings 453,866 (131,020) 322,846 10,236 (2,233)

Construction 482,075 8,433 490,508 2,318 (167,887)

Wholesale and retail 11,610 (11,555) 55 395 (45,322)

DI 9,718,254 (2,504,251) 7,214,003 27,441 (859,505)

DE 704,089 (13,186) 690,903 (63,754) (125,442)

DEC 1,820,561 (160,429) 1,660,132 (166,913) (520,746)

Subtotal 19,352,918 (3,148,600) 16,204,318 56,091 (1,785,319)

Consolidation adjustments (3,148,600) 3,148,600 - 5,975 34,420

Total

￦16,204,318 ￦- ￦16,204,318 ￦62,066 ￦(1,750,899)

(3) Summarized financial information on assets and liabilities by business segments as of


2016 2015

Assets Liabilities Assets Liabilities

Power generation ￦10,614,137 ￦7,101,472 ￦10,319,359 ￦6,732,792

Water 806,318 590,731 952,244 612,209

Industrial plants 137,520 47,187 198,150 64,318

Castings & forgings 1,284,458 489,699 1,254,422 487,464

Construction 1,578,002 1,040,279 1,444,537 1,010,122

Wholesale and retail 189,846 60,270 201,387 77,568

DI 10,026,809 6,578,432 11,383,173 8,280,217

DE 1,356,450 822,185 1,406,042 831,369

DEC 3,030,035 1,965,359 4,225,712 2,811,405

Cuvex 219,043 79,613 - -

Subtotal 29,242,618 18,775,227 ￦31,385,026 ￦20,907,464

Consolidation adjustments (4,410,050) (765,490) (4,124,885) (673,431)

Total

￦24,832,568 ￦18,009,737 ￦27,260,141 ￦20,234,033

-88-

(4) Summarized regional information on sales for the year ended December 31,2016 and

2015 is as follows (in millions of Korean won):

2016 2015

Sales Intercompany Net sales Sales Intercompany Net sales

Domestic ￦6,444,905 ￦(986,684) ￦5,458,221 ￦8,182,308 ￦(1,539,121) ￦6,643,187

America 3,213,684 (377,506) 2,836,178 3,870,545 (492,243) 3,378,302

Asia 2,454,422 (353,972) 2,100,450 2,652,533 (352,095) 2,300,438

Middle East 1,131,751 (1,461) 1,130,290 1,399,848 - 1,399,848

Europe 3,227,227 (1,014,901) 2,212,326 3,214,521 (765,141) 2,449,380

Others 155,303 (87) 155,216 33,163 - 33,163

Subtotal ￦16,627,292 ￦(2,734,611) ￦13,892,681 ￦19,352,918 ￦(3,148,600) ￦16,204,318

Consolidation

adjustments

(2,734,611) 2,734,611 - (3,148,600) 3,148,600 -

Total

￦13,892,681 ￦- ￦13,892,681 ￦16,204,318 ￦- ￦16,204,318

25. REVENUES:

Details of revenues for the years ended December 31, 2016 and 2015, are as follows (in


2016 2015

Sales of goods ￦6,662,838 ￦6,824,515

Construction contracts 7,051,817 7,473,754

Others 178,026 172,281

Total

￦13,892,681

￦14,470,550

-89-

26. CONSTRUCTION CONTRACTS:

(1) Details of the Group’s accumulated construction profit or loss for the year ended

December 31,2016 and 2015 and assets and liabilities related to construction contracts as

of December 31, 2016 and 2015 are as follows (in millions of Korean won):

As of and for the year ended December 31,2016

Accumulated

construction

revenue

Accumulated

construction cost

Accumulated

construction

profit (loss)

Receivable from

construction contract Due to customers for

contract work Claimed Unclaimed

Power generation

￦30,699,20

8

￦25,553,3

19 ￦5,145,889 ￦177,167

￦1,239,82

4 ￦553,818

Water 3,953,709 3,487,802 465,907 61,505 128,741 58,200

Industrial plants 496,219 401,044 95,175 5,718 13,438 9,585

Castings &

forgings

8,607 4,463 4,144 - 8,607 -

Plant construction 1,327,101 1,294,002 33,099 2,529 27,258 1,297

General construction 2,259,668 2,008,108 251,560 466,884 130,173 44,863

38,744,512 32,748,738 5,995,774 713,803 1,548,041 667,763

Subsidiaries:

DEC 7,668,210 6,756,550 911,660 1,207,098 226,956 147,307 DE 233,372 187,819 45,553 452 15,762 16,562 DPS S.A and

subsidiaries

8,960,275 8,255,746 704,529 287,304 217,639 74,036

16,861,857 15,200,115 1,661,742 1,494,854 460,357 237,905

￦55,606,369 ￦47,948,853 ￦7,657,516 ￦2,208,657

￦2,008,39

8 ￦905,668

Internal transaction (50,440) (45,246) (5,194) (79,582) (16) (29,159)

Discontinued (157,527) (136,312) (21,215) - - -

Total

￦55,398,40

2

￦47,767,2

95 ￦7,631,107 ￦2,129,075

￦2,008,38

2 ￦876,509

As of and for the year ended December 31, 2015

Accumulated construction

revenue

Accumulated

construction cost

Accumulated construction

profit (loss)

Receivable from

construction contract Due to customers for

contract work Claimed Unclaimed

Power generation ￦27,658,253 ￦22,939,565 ￦4,718,688 ￦219,450 ￦1,140,386 ￦653,368

Water 4,055,496 3,668,334 387,162 131,936 128,573 1,419

Industrial plants 750,561 703,137 47,424 6,567 30,301 15,745

Plant construction 1,257,669 1,235,229 22,440 7,674 14,618 10,882

General

construction

2,179,703 2,026,072 153,631 756,117 113,125 55,382

35,901,682 30,572,337 5,329,345 1,121,744 1,427,003 736,796

Subsidiaries:

DEC 9,714,942 8,599,549 1,115,393 1,306,672 362,170 270,789

DE 226,100 177,913 48,187 - 2,331 9,702

DPS S.A and

subsidiaries

9,717,433 8,839,573 877,860 171,555 191,903 183,311

19,658,475 17,617,035 2,041,440 1,478,227 556,404 463,802

￦55,560,157 ￦48,189,372 ￦7,370,785 ￦2,599,971 ￦1,983,407 ￦1,200,598

Internal transaction (31,373) (28,207) (3,166) (51,286) (30) (19,942)

Discontinued (2,150,205) (1,908,384) (241,821) (84,682) (180,925) (79,505)

Total

￦53,378,579 ￦46,252,781 ￦7,125,798 ￦2,464,003 ￦1,802,452 ￦1,101,151

-90-

(2) Changes in construction contracts for the year ended December 31, 2016 and 2015 are as


2016

Project name

Period

January 1,

2016

Increase

(decrease)

Revenue

recognized

December

31,2016,

Power generation Vinh Tan 4 Thermal

Power Plant and others

2014.02~ 2018.06

￦11,431,311 ￦3,286,503 ￦3,563,681 ￦11,154,133

Water Yanbu ph.3 MSF and

others

2012.11~

2016.12

636,475 588,173 296,230 928,418

Industrial plants AOE-II reduction gear and

others

2014.06~ 2017.11

63,098 59,825 56,430 66,493

Castings & forgings Jurong 2016.06~

2017.04

- 10,770 8,607 2,163

Plant construction

Shinboryung #1,2 electric

generation construction

and others

2013.06~

2017.06

478,151 127,063 104,206 501,008

General construction Seoul Forest Trimage and

others

2013.07~

2017.04

845,280 438,501 335,120 948,661

￦13,454,315 ￦4,510,835 ￦4,364,274 ￦13,600,876

Subsidiaries:

DEC

Suseo-Pyungtaek high

speed rail second

construction district and

others

2007.05~ 2019.12

￦7,072,769 ￦1,042,979 ￦1,613,861 ￦6,501,887

DE

Singori #3 and #4

emergency generators,

alternative AC power

diesel engine and other 15

2005.02~ 2017.03

85,208 (831) 34,446 49,931

DPS S.A and

subsidiaries Raipur and others

2008.12~

2030.12

3,319,743 1,348,350 1,442,001 3,226,092

￦10,477,720 ￦2,390,498 ￦3,090,308 ￦9,777,910

￦23,932,035 ￦6,901,333 ￦7,454,582 ￦23,378,786

Internal transaction (208,295) (108,027) (14,108) (302,214)

Discontinued (871,414) 524,698 (346,716) -

￦22,852,326 ￦7,318,004 ￦7,093,758 ￦23,076,572

-91-

2015

Project name

Period

January 1,

2015

Increase

(decrease)

Revenue

recognized

December

31, 2015

Power generation Vinh Tan 4 Thermal Power

Plant and others

2014.02~ 2018.06

￦11,170,597 ￦4,052,849 ￦3,792,135 ￦11,431,311

Water Yanbu ph.3 MSF and

others

2012.11~

2016.12

809,156 263,010 435,691 636,475

Industrial plants Cikarang GTSU 2 and

STRE 2 and others

2014.04~ 2016.04

173,941 (41,773) 69,070 63,098

Plant construction

Shinboryung #1,2 electric

generation construction

and others

2013.06~

2017.06

128,220 488,819 138,888 478,151

General construction Seoul Forest Trimage and

others

2013.07~ 2017.01

957,047 231,420 343,187 845,280

￦13,238,961 ￦4,994,325 ￦4,778,971 ￦13,454,315

Subsidiaries:

DEC

Suseo-Pyungtaek high

speed rail second

construction district and

others

2007.05~

2017.12

￦6,736,325 ￦2,078,629 ￦1,742,185 ￦7,072,769

DE

Singori #3 and #4

emergency generators,

alternative AC power

diesel engine and other 15

2005.02~

2017.03

97,502 24,460 36,754 85,208

DPS S.A and

subsidiaries Raipur and others

2008.12~ 2030.12

1,916,543 2,954,622 1,551,422 3,319,743

￦8,750,370 ￦5,057,711 ￦3,330,361 ￦10,477,720

￦21,989,331 ￦10,052,036 ￦8,109,332 ￦23,932,035

Internal transaction (75,788) (150,282) (17,775) (208,295)

Attributed to : Discontinued operations (802,459) (664,091) (595,136) (871,414)

￦21,111,084 ￦9,237,663 ￦7,496,421 ￦22,852,326

(3) Changes in profit or loss in current and future reporting periods and the book value of due

from (to) customers for contracts work (excluding foreign currency translation effect)

resulting from changes in total contract revenue and in total estimated contract costs for

construction contracts in progress As of December 31,2016 are as follows (in millions of

Korean won):

Changes in

total contract revenue

Changes in

total contract cost

Effect on

profit(loss) for the year

Effect on

profit(loss) for the future

Changes in due

from (to) customer for contract work

provision for

construction loss

Power generation ￦439,014 ￦250,190 ￦101,381 ￦87,443 ￦101,381 ￦7,803

Water 144,323 117,947 23,924 2,452 23,924 122

Industrial plants 1,891 (1,792) 1,752 1,931 1,752 -

Plant construction 31,652 26,717 4,355 580 4,355 2,516

General construction 16,269 14,443 (1,338) 3,164 (1,338) 2,152

DE - 1,440 (1,415) (25) (1,415) -

DEC 18,727 13,000 (19,391) 33,459 (19,391) 2,176

Subtotal ￦651,876 ￦421,945 ￦109,268 ￦129,004 ￦109,268 ￦14,769

Discontinued 4,908 (13,068) 9,727 (92) 9,727 -

Total

￦656,784 ￦408,877 ￦118,995 ￦128,912 ￦118,995 ￦14,769

-92-

Impacts on current and future net income were calculated based on total contract revenue

and costs which were estimated based on the current circumstances as of December 31,

2016. Those estimations may change in the future.

(4) As of December 31,2016, details of contracts that the revenue was recognized based on

the percentage of completion measured by contract cost incurred, which is more than 5%

of sales of years ended December 31, 2016 are as follows. There is no contract that the

group decided not to disclose due to the prohibition by related regulations or contracts. (in



contract work

Trade receivables(receivables

from construction contract)

Contract date

Due date /

Delivery date

in contract

Percentage of

completion Amount

Allowance

for doubtful

accounts Amount

Allowance

for doubtful

accounts

UAE BNPP #1, 2 NSSS 2010-06-30 2018-05-01 97 ￦- ￦- ￦- ￦-

Ras Al Khair 2010-08-31 2017-03-27 94 12,996 - 74,797 -

Nghi Son II 2014-12-24 2019-07-30 - - - - -

Vinh Tan 4 TPP 2014-02-26 2018-06-30 82 270,792 - 15,012 200

UAE BNPP #3, 4 NSSS 2010-06-30 2020-05-01 74 - - - -

Shinhanwul #1, 2 NSSS 2009-07-31 2018-02-28 94 34,486 - - -

Shingori #5,6 NSSS 2014-08-28 2022-03-31 36 - - - -

Shingori #3, 4 NSSS 2006-08-28 2017-03-31 98 22,209 - - -

Yanbu Ph.3 MSF(*1) 2012-12-04 2016-12-15 90 55,253 - - -

Qurayyah Add-On (*1) 2009-09-16 2013-02-15 100 130,681 - - -

Fadhili CHP 2016-11-12 2019-11-30 3 - - - -

Song Hau 1 2015-04-10 2019-10-02 33 154,219 - 234 -

Raipur Chhattisgarh TPP (*1) 2010-01-22 2016-04-03 100 - - 72,343 -

(*1) The Group is negotiating to extend contract period with respective contract party.

27. EXPENSES CLASSIFIED BY NATURE:

Expenses classified by nature for the year ended December 31, 2016 and 2015 are as follows


2016 2015

Changes in inventories

￦465,885

￦135,418

Purchases of raw materials and goods 6,245,905 7,462,978

Salaries 2,124,905 2,445,926

Depreciation and amortization 515,709 545,483

Others 3,749,104 3,908,077

Total ￦13,101,508 ￦14,497,882

-93-

28. SELLING AND ADMINISTRATIVE EXPENSES:

Details of selling and administrative expenses for the years ended December 31, 2016 and


2016 2015

Salaries ￦516,690 ￦531,725

Severance and retirement benefits 41,972 218,976

Employee welfare benefits 106,286 118,148

Travel 44,603 53,982

Training 18,703 21,895

Taxes and dues 21,411 21,918

Commissions 221,001 224,700

Sales commission 54,724 52,589

Rents 59,686 64,904

Bad debt expenses 17,368 289,704

Transportation 11,891 12,671

Depreciation 22,699 26,398

Amortization 72,327 72,515

Research 191,636 241,117

Foreign marketing development expenses 25,012 30,114

Advertising 66,444 89,996

Warranty 20,813 25,628

Insurance and others 110,749 117,659

Total ￦1,624,015 ￦2,214,639

29. FINANCE INCOME AND EXPENSES:

(1) Finance income for the year ended December 31,2016 and 2015 are summarized as


2016 2015

Interest income

￦39,607 ￦44,247

Dividend income 304 1,266

Gain on foreign currency transaction 236,898 289,026

Gain on foreign currency translation 132,939 122,297 Gain on settlement of derivative financial

instruments 321,713 308,526 Gain on valuation of derivative financial


Gain on valuation of firm commitments 182,478 296,009

Others 745 2,047

Total ￦1,016,003 ￦1,203,283

-94-

(2) Finance expenses for the year ended December 31,2016 and 2015 are summarized as


2016 2015

Interest expenses

￦513,219 ￦612,816

Loss on foreign currency transaction 254,914 254,112

Loss on foreign currency translation 192,921 302,932 Loss on settlement of derivative financial

instruments 260,332 287,183 Loss on valuation of derivative financial


Loss on valuation of firm commitments 76,489 89,306

Payment of guarantee fee 30,889 39,429

Loss on redemption of bonds 9,844 350

Others 2,426 2,632

Total ￦1,563,195 ￦1,898,601

30. OTHER NON-OPERATING INCOME AND EXPENSES:

(1) Other non-operating income for the year ended December 31,2016 and 2015 consist of


2016 2015

Gain on disposal of property, plant and equipment ￦15,910 ￦5,428

Gain on disposal of intangible assets 293 625

Gain on disposal of other non-current assets - 29,718 Gain on disposal of non-current assets classified as

held-for-sale 1,102 -

Others 91,401 57,440

Total ￦108,706 ￦93,211

(2) Other non-operating expenses for the year ended December 31,2016 and 2015 consist of


2016 2015

Loss on disposal of trade receivables ￦11,359 ￦12,142

Loss on disposal of property, plant and equipment 14,673 8,645

Other bad debt expenses 210,007 283,257

Impairment loss on property, plant and equipment 4,030 129,915

Impairment loss on intangible assets 58,297 192,463 Impairment loss on non-current assets classified as

held-for-sale 31,399 71,811

Donations 13,678 26,262

Others 240,733 177,092

Total ￦584,176 ￦901,587

-95-

31. INCOME TAX EXPENSE:

(1) The component of income tax expenses for the years ended December 31, 2016 and


2016 2015

Current income tax expense ￦143,795 ￦88,091

Adjustments in respect of

current income tax of prior year

568 176

Tax effect of temporary difference 206,793 197,182

Total income tax expense (benefit) 351,156 285,449

Current income tax related to items

recognized in equity during the year

(25,326) 1,360

Deferred tax related to items

recognized in equity during the year

(32,887) (121,550)

Income tax benefit related to

discontinued operation

(159,064) -

Others (2,314) (34,207)

Income tax expense (benefit) ￦131,565 ￦131,052

(2) The component of income tax expense and deferred tax related to items recognized in

equity for the years ended December 31, 2016 and 2015 are as follows (in millions of

Korean won):

2016 2015

Net Gain(loss)

on disposal of treasury stock

￦(16,928)

￦-

Equity adjustments in equity method - (22)

Net gain(loss) on revaluation of land 4,005 (111,463)

Unrealized gain(loss) on

available for sale financial assets

(43,186)

(4,244)

Gain (loss) on valuation of

derivative financial instruments

(6,811)

(13,847)

Remeasurement of

the net defined benefit liability

10,874

16,170

Net gain(loss) on translation of

foreign operations

(6,066)

44,215

Others (101) (50,999)

Total ￦(58,213) ￦(120,190)

-96-

(3) Changes in deferred tax assets (liabilities) for the years ended December 31, 2016 and


2016

Jan 01

Increase

(decrease) Dec 31

Provision for retirement and

severance benefits

￦258,891

￦29,059

￦287,950


accounts

480,818

5,020

485,838

Property, plant and equipment 30,444 7,190 37,634

Reserve for research and

development

(97,261)

45,441

(51,820)

Intangible assets 67,191 (14,937) 52,254

Derivative financial instruments 32,481 (10,655) 21,826

Foreign currency denominated

assets (liabilities)

16,653

6,932

23,585

Gain on revaluation of land (759,244) 52,250 (706,994)

Others 634,792 (327,093) 307,699

Total ￦664,765 ￦(206,793) ￦457,972

2015

Jan 01

Increase

(decrease) Dec 31

Provision for retirement and

severance benefits

￦262,606

￦(3,715)

￦258,891


accounts

398,220

82,598

480,818


Reserve for research and

development

(137,584)

40,323

(97,261)

Intangible assets 53,446 13,745 67,191

Derivative financial instruments 57,981 (25,500) 32,481

Foreign currency denominated

assets (liabilities)

1,232

15,421

16,653

Gain on revaluation of land (682,421) (76,823) (759,244)

Others 882,898 (248,106) 634,792

Total ￦861,947 ￦(197,182) ￦664,765

(4) The amount of deductible temporary differences for which no deferred tax asset is

recognized in the statements of financial position as at December 31, 2016 and 2015

are as follows (in millions of Korean won):

2016 2015

Deductible temporary differences ￦4,858,343 ￦3,651,343

The probability of deferred tax assets being realized depends on the Group's ability to

generate taxable income in future years over which temporary differences are expected

to reverse depending on the economic situation, industry forecast and other various

factors. The Group periodically reviews such matters.

-97-

(5) Temporary differences related to investment in subsidiaries, associates and joint

ventures which are not recognized as deferred tax asset (liability) as at December 31,

2016 and 2015 are as follows (in millions of Korean won):

2016 2015

Investment in subsidiaries ￦145,203 ￦681,368

Investment in associates or joint ventures 55,494 41,324

Total ￦200,697 ￦722,692

(6) Reconciliation of loss before income tax at the Korea statutory tax rate to income tax

benefit at the effective income tax rate of the company as follows (in millions of

Korean won):

2016 2015

Net loss before income tax ￦(246,097) ￦(1,612,685)

Income tax using

the controlling company's

statutory tax rate

75,124

(528,954)

Adjustments:

Non-temporary differences (20,811) (53,366)

Unrealized deferred tax related to temporary

differences

76,164

583,232

Tax credit (16,864) (7,195)

Others 17,952 137,335

Income tax expense(benefit) ￦131,565 ￦131,052

Effective tax rate(*1) - -

(*1) Effective tax rate for the years ended December 31, 2016 and 2015 were not

calculated due to loss before income tax.

32. EARNINGS (LOSS) PER SHARE:

(1) Basic earnings (loss) per share

Basic earnings (loss) per share for the year ended December 31, 2016 and 2015 are as

follows (in Korean won):

2016 2015

Net income(loss) for the period attributable to equity

holders of the parent

￦(170,750,790,211) ￦(1,038,543,220,644)

Less: preferred stock dividend 12,309,000,165 12,309,000,165

Income(Loss) for the period attributable to ordinary equity

holders of the parent (183,059,790,376) (1,050,852,220,809)

Income (Loss) from continuing operations (268,909,894,468) (1,009,252,761,890)

Income (loss) from discontinued operations 85,850,104,092 (41,599,458,919)

Weighted-average number of ordinary stock outstanding 103,001,492 Shares 98,845,751 Shares

Earnings (loss) per share:

Basic, loss for the year attributable to ordinary equity

holders of the parent ￦(1,777) ￦(10,631)

Income(loss) for the period from continuing operations (2,611) (10,210)

Income(loss) for the period from discontinued operations 834 (421)

-98-

Weighted-average number of ordinary shares outstanding for the year ended December

31, 2016 and 2015 are as follows (number of shares):

2016 2015

Beginning outstanding shares

106,158,256 106,158,256

Beginning treasury stock (7,312,505) (7,312,505)

Disposal of treasury stock 4,155,741 -

Weighted-average number of common shares outstanding

as of December 31 103,001,492 98,845,751

(2) Diluted earnings (loss) per share for the year ended December 31,2016 and 2015 are as

follows (in units of Korean won, except for share):

2016 2015

Income(loss) for the period attributable to equity holders of

the parent

￦(183,059,790,376) ￦(1,050,852,220,809)

Adjusted profit (loss) for the period

Income(loss) for the period attributable to equity holders of

the parent after adjustment (183,059,790,376) (1,050,852,220,809)

Income (Loss) from continuing operations (268,909,894,468) (1,009,252,761,890)

Income (loss) from discontinued operations 85,850,104,092 (41,599,458,919)

Weighted-average number of ordinary stock outstanding 103,001,492 Shares 98,845,751 Shares

Earnings (loss) per share:

Diluted, Income(loss) for the period attributable to ordinary

equity holders of the parent ￦(1,777) ￦(10,631)

Income(loss) for the period from continuing operations (2,611) (10,210)

Income for the period from discontinued operations 834 (421)

There is no difference between adjusted weighted-average number

of common shares outstanding for the calculation of diluted earnings

per share and weighted average number of common shares

outstanding for the calculation of basic earnings per share.

(3) Details of potential ordinary shares, that are potentially dilutive but were not included in

the calculation of earnings(loss) per share, as there were no dilutive effects for the year

ended December 31,2016 and 2015 are as follows (number of shares):

2016 2015

Stock option (2006.02.27) - 2,600

Stock option (2007.03.16) 6,800 8,600

Stock option (2008.03.21) 13,400 17,400

Stock option (2009.03.27) 10,900 13,200

Stock option (2010.03.26) 26,800 29,600

Stock option (2011.03.25) 50,500 59,900

Stock option (2012.03.30) 114,800 143,200

Stock option (2013.03.29) 201,000 279,900

Stock option (2014.03.28) 342,300 342,300

Redeemable convertible preferred shares 13,203,540 13,203,540

Total

13,970,040

14,100,240

-99-

33. COMMITMENTS AND CONTINGENCIES:

(1) As of December 31, 2016, 21 promissory notes in the aggregate of ￦13,136 million, 19

blank notes and 38 blank checks have been provided as collateral to relevant financial

institutions and others for the Group’s debt and guarantees.

(2) As of December 31, 2016, the Group has credit lines for borrowings, bank overdraft and

others from financial institutions up to ￦8,922,511 million and used ￦7,379,568

million. As a result, the Group maintains unused credit lines amounts to ￦1,542,853

million.

(3) As of December 31, 2016, the Group is involved in pending lawsuits as a defendant with

total claims of approximately ￦568,025 million. The outcome of such pending lawsuits

cannot presently be determined. In 2015, Hyundai Engineering & Construction Co., Ltd.

requested International Chamber of Commerce to arbitrate disputes on manufacture of

HRSG and warranties for general repairs with DEC. As of December 31, 2016,

arbitration is in process, and the outcome of the arbitration cannot be reasonably

estimated.

(4) As of December 31, 2016, the Group has entered into 20 technical contracts with

Mitsubishi Heavy Industries, Ltd. and others. For the year ended December 31, 2016 and

2015, royalty payments amounted to ￦60,380 million and ￦59,496 million,

respectively.

(5) The Group continues to recognize factored financial assets in the statement of financial

position since the Group holds virtually all the risks and rewards of ownership. The

Group also recognizes the associated financial liabilities of ￦101,919 million as of

December 31, 2016.

(6) As of December 31, 2016, the Group provides joint and several guarantees of ￦488,649

million for the performance of construction contracts to other construction companies. In

addition, the Group provides joint and several guarantees for construction performance

to Korea Housing & Finance Corporation related to the guarantee for housing sales,

which was provided by Korea Housing Finance Corporation to the developers.

(7) As of December 31, 2016, payment guarantees by financial institutions of ￦12,026,815

million are provided for the Group in connection with domestic and overseas construction

projects and others.

(8) As of December 31, 2016, the Group provides payment guarantees of ￦2,121,263

million to customers and purchasers of vacant lots for housing sales for the purpose of

supporting reconstruction and redevelopment project unions and domestic and overseas

sales.

-100-

(9) As of December 31, 2016, the Group's total future minimum lease payments under non-

cancellable operating lease contracts are as follows (in millions of Korean won):

Amount

Less than 1 year ￦42,557

More than 1 year ~ less than 5 years 119,799

More than 5 years 110,105

Total

￦272,461

(10) The Supreme Court of the Republic of Korea ruled that regular bonuses and other

employee benefits, which are to be paid on a regular basis, universally applicable, and at

fixed term, also fall under the category of ordinary wages. Given that the Supreme

Court’s ruling is expected to cause an additional financial burden for most companies,

the Supreme Court ruled that such additional liability may be exempt from its retroactive

obligation, should such liability lead to excessive financial hardship for the entity. In

relation to the Supreme Court’s ruling, the Group sees the possibility of the likeliness of

having to pay related amounts to be low and it cannot be reasonably estimated.

(11) As of December 31, 2016, details of guarantees provided by the Group for developers’

project financing are as follows (in millions of Korean won):

Type Developer Project name Lender

Guarantee

period

Guarantee

limit Loan balance Warranty type

ABCP

The Company

Yong-in Administration

Town

Meritz Securities

Co., Ltd.

2016.04.07 ~

2017.04.04

￦45,000 ￦45,000

Debt assumption

Loan

The Company Seoul Forest Trimage

Korea Federation of

Community Credit

Cooperative and others

2014.04.29 ~

2017.08.29

135,000 135,000

Debt assumption

DEC

Ulsan Daehyungdong Woori bank and others 2013.07.11 ~

2017.11.30

116,350 89,500 Joint and several

guarantee

Hwaseong Banwol Woori bank and others 2008.03.31 ~

2017.06.30


guarantee

Pohang new port Shinhan Bank and

others 2010.03.26 ~

2025.12.31


guarantee

Daejeon Riverside KEB Hana Bank 2004.05.06 ~

2024.05.06


guarantee

Subtotal ￦316,297 ￦277,447

Short-term

Bond The Company

Seoul Forest Trimage

LIG Securities and

others 2014.04.29~

2017.08.29

35,000 35,000

Debt assumption

Sangdo-dong Doosan

We’ve(2nd) Hyundai Securities and

others 2016.02.26~

2017.02.24

17,000 17,000

Debt assumption

Hongcheon Club Mow Hyundai Securities and

others 2016.04.19~

2017.04.18

175,400 175,400

Debt assumption

DEC

Ulsan Daehyungdong KTB Securities 2016.10.06~

2017.01.05


guarantee

Cheonan

Chengdangdong KTB Securities 2016.12.30~

2017.03.30


guarantee

Cheonan

Chengdangdong HMC Securities 2016.12.02~

2017.03.02


guarantee

Cheonan


2017.03.09


guarantee

Cheonan


2017.03.15


guarantee

Cheonan


2017.03.30


guarantee

Yongin samga KTB Securities 2016.12.19~

2017.03.17


guarantee

Yongin samga.

KTB Securities 2016.12.29~

2017.03.29

78,000 60,000

Joint and several

guarantee

Subtotal ￦711,000 ￦599,400

Total

￦1,072,297 ￦921,847

-101-

(12) Details of consolidated structured entities as of December 31, 2016 are as follows (in


Entity

Nature of interests in consolidated

structured entities or provision of

financial support

Liability amount of

interests in consolidated

structured entities

Maximum exposure to

the loss of consolidated

Structured entities

DM Best 2nd Co., Ltd. (*1) Obligation for financial support

including principle, interest, etc. ￦95,000 ￦93,200

PINETREECITY 1st Co,

Ltd. (*2)

Obligation for financial support

including principle, interest, etc. 60,000 60,000

DM Best 3rd Co., Ltd. (*3) Obligation for financial support


DM Best 4th Co., Ltd. (*4) Obligation for financial support


The DSWAY 1st Co., Ltd.

(*5)



Yongin Samga Project 1st

LLC (*6)



Doosan E&C 2nd Co., Ltd.

(*7)



KDPP 1st Co., Ltd. (*8) Obligation for financial support


KDPP 2nd Co., Ltd. (*8) Obligation for financial support


KDPP 3rd Co., Ltd. (*9) Obligation for financial support


Happy Tomorrow 25th Co.,

Ltd. (*9)



Happy Tomorrow 27th Co.,

Ltd. (*9)



(*1) DM Best 2nd Co., Ltd. was established for the purpose of

securitizing future construction receivables from three

government-ordered constructions projects including Incheon-

Kimpo Highway project of DEC. It receives funds from issuing ABS

bonds to financial institutions. Based on the book value presented

in its financial statements, underlying assets amounted to ￦95,000

million as of December 31, 2016

(*2) PINETREECITY 1st Co., Ltd. was established for the purpose of

borrowing by providing DEC’s Changwon 2nd plant as

subordinated collateral. The company issued ABS bonds to financial

institution for funding and the book value of underlying assets are

￦60,000 million based on its financial statement as of December 31,

2016. DEC has provided the certain portion of properties for

obligation for financial supporting for the company.

(*3) DM Best 3rd Co., Ltd. was established for the purpose of

securitizing future construction receivables from four government-

ordered constructions projects including Hanam double track

railway zone 2 project of DEC. It receives funds from issuing ABS

bonds to financial institutions. Based on the book value presented

-102-

in its financial statements, underlying assets amounted to ￦80,000

million as of December 31, 2016

(*4) DM Best 4th Co., Ltd. was established for the purpose of securitizing

future construction receivables from eight government-ordered

constructions projects including Kimpo railway zone 2 project of

DEC. It receives funds from issuing ABS bonds to financial

institutions. Based on the book value presented in its financial

statements, underlying assets amounted to ￦45,000 million as of

December 31, 2016

-103-

(*5) The DSWAY 1st Co., Ltd. was established for the purpose of

securitizing future construction receivables from five construction

projects including Doosan research complex of DEC. It receives

funds from issuing ABS bonds to financial institutions. Based on the

book value presented in its financial statements, underlying assets

amounted to ￦20,500 million as of December 31, 2016

(*6) Yongin Samga Project 1st LLC was established for the purpose of

borrowing by providing DEC’s Yongin Samga project site as

subordinated collateral. The company issued ABS bonds to financial

institution for funding and the book value of underlying assets are

￦12,000 million based on its financial statement as of December 31,

2016. DEC has provided the certain portion of properties for

obligation for financial supporting for the company.

(*7) Doosan E&C 2nd Co., Ltd. was established for the purpose of

borrowing by providing DEC’s Changwon 2nd plant as collateral.

The company issued ABS bonds to financial institution for funding

and the book value of underlying assets are ￦82,000 million based

on its financial statement as of December 31, 2016. DEC has

provided the some of its properties for obligation for financial

supporting for the company.

(*8) KDPP 1st Co., Ltd and KDPP 2nd Co., Ltd. was established for the

purpose of securitizing future construction receivables belongs to

parent company. It receives funds from issuing ABCP bonds to

financial institutions. Based on the book value presented in its

financial statements, underlying assets amounted to ￦92,000

million and ￦135,000 million each as of December 31, 2016,

respectively.

(*9) KDPP 3rd Co., Ltd. Happy Tomorrow 25th Co., Ltd. Happy

Tomorrow 27th Co., Ltd. was established for the purpose of

securitizing common stocks and convertible redeemable preferred

stocks of DEC belongs to parent company. It receives funds from

issuing ABCP bonds to financial institutions. Based on the book

value presented in its financial statements, underlying assets

amounted to ￦70,000 million, ￦50,000 million and ￦30,000 each

as of December 31, 2016.

-104-

(13) Other commitments and contingencies

1) During the year ended December 31, 2016, DI issued 28th series bonds denominated

in USD 300 million. In accordance with the agreement for issuing the 19th series

bonds, an early redemption clause exists for when and if DI’s guarantor, KDB,

becomes privatized. However, under the agreement, the funds required for such

redemption will be lent by KDB to DI. In addition, DI has provided its 11,178,538

shares of Doosan Bobcat Inc. as collateral.

2) As of December 31, 2016, DI, a shareholder of Doosan Infracore China Co., Ltd.

entered into an agreement with financial investors under which DI and the financial

investors, as they mutually agree, may collectively dispose of all shares in Doosan

Infracore China Co., Ltd., respectively held by each, to a third party. Upon exercise

of the agreement by the financial investors, DI holds the right to sell its shares in

Doosan Infracore China Co., Ltd. together pursuant to the agreement or otherwise

repurchase the shares held by the financial investors.

3) DEC entered into construction contracts with INTDC Co., Ltd. and Daewon Plus

Constructions Co., Ltd., to develop Ilsan Zenith project and Haeundae Zenith project,

respectively. DEC has provided guarantees to customers, who purchase the Ilsan

Zenith and Haeundae Zenith apartments, for the consideration paid to purchase the

apartments during the repurchase guarantee periods (2~3 years after the date of sale),

should customers apply for such guarantees (See Note 33-(8)). As of December 31,

2016, the Group’s consolidated financial statements do not reflect the effect from

such guarantees as the Group cannot reasonably predict the number of purchasers

applying for the guarantee and the related guaranteed amount.

4) With regard to the Incheon-Kimpo Highway Construction Project, the Group entered

into a capital supplement agreement with a limit of guarantee of ￦22,346 million

with Incheon-Kimpo Expressway Co., Ltd. and Construction investors associated

with SOC business have an agreement of providing an insufficient fund, when the

agreement was terminated or insufficient to repay the loan principal and interest by

buy price or payment arising from purchase requirement from authorities.

5) As of December 31, 2016, the Company has entered into a contract to assume a

liability (Limit: ￦92,600 million) if it fails to complete construction of The Land

Park Office in Magok district and Gwanggyo Doosan We’ve project.

6) DEC entered into an agreement to disburse possible liquidate damage to Doosan

Mecatec Co., Ltd. for the business contracts entered prior to the business transfer

limited by ￦27,300 million that and the company recognize the effect on the

financial statement from the outcome of the contract in provision.

-105-

34. ASSETS PLEDGED AS COLLATERAL:

(1) Assets pledged as collateral related with debt

1) As of December 31,2016, assets that have been pledged as collateral for the Group's

borrowings and others are as follows (in millions of Korean won):

Pledger Collateralized asset

Collateralized

Amount

Amount of

borrowings

and others Pledgee

The Company Property, plant and equipment ￦990,485 ￦954,747 KDB and others

3,870 2,572 Korea Exim Bank

58,167 72,510 Vietnam Bank

3,812 3,812 Banca Transylvania

Equity securities in subsidiaries 124,132 70,000 KDB and others

366,154 180,000 Shinyoung Securities and others

DI Property, plant and equipment(*1) 941,589 163,460 KDB

DEC Short-term financial instruments 1,000 1,000 Kiup Bank

Investment properties 31,200 - KDB(*2)

Inventory 67,500 45,868 KDB

105,000 - KEB Hana Bank

Property, plant and equipment 130,050 82,000 Doosan E&C 2nd Co., Ltd.

78,000 60,000 PINETREECITY 1st Co., Ltd.

DE Property, plant and equipment 7,584 6,320 KDB

Cuvex Property, plant and equipment 19,500 4,000 KEB Hana Bank

Total ￦2,928,043 ￦1,646,289

(*1) The rights to the benefits from property and inventory insurance have been pledged

as collateral to KDB.

(*2) Subordinate beneficiary certificate owned by the group according to real estate trust

agreement is pledged as collateral to KDB.

2) Clark Equipment Co. ("CECO") and Doosan Holdings Europe

Ltd. (DHEL) repaid all the long-term borrowings funded in

2011 for the acquisition of the Compact Equipment business

of Ingersoll-Rand and entered into a new loan agreement to

borrow USD 1,700,000 thousand on May 28, 2014. DI

provided 62,495 shares in CECO, 38,446 shares in DHEL,

110,071,219 shares in Doosan Infracore South East Asia

Pte.Ltd. and certain tangible and intangible assets of CECO

and DHEL, and their subsidiaries as collateral for

borrowings. The balance of borrowings as of December 31,

2016 amounted to USD 947,500 thousand.

3) DI has provided all of its shares in Doosan Infracore America Corp. and Doosan

Infracore Norway AS. as collateral for borrowings of USD147,000 thousands from

Korea Exim Bank. In addition DI has provided 5,004,125 shares in Doosan Bobcat

Inc. as collateral for borrowings ￦100,000 million from Korea Exim bank.

-106-

4) DEC has provided 1,200,000 shares in Doosan Cuvex Co., Ltd. as collateral in

connection with an overdraft limit agreement of ￦105,958 million with Woori Bank.

As of December 31, 2016, the balance of related borrowings amounted to ￦105,958

million.

-107-

5) DEC has provided 24.76% of equity interests in Doosan Heavy Industry Vietnam Co.,

Ltd. and 20% of equity interests in DHI Vietnam Haipong Co., Ltd. as collateral in

connection with an overdraft limit agreement of ￦45,868 million with KDB. As of

December 31, 2016, the balance of related borrowing amounted to ￦45,868 million.

(2) As of December 31,2016 assets pledged as collateral on behalf of others are summarized

as follows (in millions of Korean won):

Pledgor Collateralized Asset

Book

value

Pledgee Beneficiary

The

Company

Long-term

investment

securities

￦23,818

Kookmin Bank and

others

Incheon-Kimpo express

highway Co., Ltd. and others

Inventories 9,824 CSOB Abener Energia S.A.

DEC

Long-term

investment

securities

101,657

KDB and others

Metropolitan West Highway

and others

Total \135,299

(3) Some of investments in associates and joint ventures such as, Shinbundang Co., Ltd.

stock and others (Book value: ￦24,499million) have been provided as collateral for

certain subsidiaries’ project financing to KDB and other, lenders of the project financing.

In addition, DEC has provided some of investment properties as collateral to KDB for

borrowings amounted to ￦110,000 million of Doosan Mecatec Inc. and some of

properties have been provided as collateral for guarantee deposits for leases of Next

Entertainment Inc. amounted to ￦3,000 million.

-108-

35. RELATED-PARTY TRANSACTIONS:

(1) The major related parties of the Group and nature of their relationship with the Group as

of December 31, 2016 are as follows:

1) As of December 31, 2016, the Group’s ultimate parent company is Doosan

Corporation (equity ownership: 36.82%).

2) As of December 31, 2016, the details of the Group’s associates and joint ventures,

other related parties are as follows:

Control relationship Related party

Associates and joint

ventures

Tamra Offshore Wind Power Co., Ltd., Dalian Samyoung Doosan Metal Product Co.,Ltd.,

Kyunggi Railroad Co., Ltd., Shinbundang Railroad Co., Ltd., Neo Trans Co., Ltd.,

New Seoul Railway Corporation, Haman Industrial Complex Company, Xuzhou Xugong Doosan Engine Co., Ltd., Doosan PSI LLC, Doosan Infracore Liaoning Machinery Sales

Co., Ltd and others

Others related parties:

Subsidiaries of the parent

company(*2)

Doota Mall Co., Ltd.(*3), Oricom Inc., Hancom Co., Ltd., Doosan DST Co., Ltd.,

Doosan Bears Inc.

Doosan Advertising (Beijing) Co., Ltd., Doosan Feed & Livestock Co., Ltd.,

DIP Holdings Co., Ltd., DRA Co., Ltd.,

Doosan Real Estate Securitization Specialty Co., Ltd.,

Doosan 2nd Real Estate Securitization Specialty Co., Ltd.,

Doosan Leadership Institute(*1), Doosan Mecatec Co., Ltd.(*1)

Doosan Hongkong Ltd.(DSH), Doosan Shanghai Chemical Limited

Doosan Electro-Materials Singapore Pte Ltd.(“DSES”),

Doosan Electro-Materials (Changshu) Co., Ltd.,

Doosan Electro-Materials America, LLC, Doosan Electro-Materials Luxembourg Sarl,

Doosan Electro-Materials(Shen Zhen) Limited,

Doosan Information and Communications America LLC,

Doosan Information and Communications China Co., Ltd.,

Doosan Information and Communications Europe Ltd.,

Doosan Industrial Vehicle Europe N.A., Doosan Industrial Vehicle U.K. Ltd.,

Doosan Industrial Vehicle America Corp., Doosan Industrial Vehicle Yantai Co., Ltd.,

Doosan Logistics Europe GmbH, Doosan Mottrol (Jiangyin) Co., Ltd.,

Doosan Fuel Cell America Inc., Circuit Foil Luxembourg Sarl and others

Associates and joint

ventures of the parent

company

Guang Dong Xingpu Steel Center, Doosan Eco Biz Net Co., Ltd., Prestoliteasia Co., Ltd., Sichuan Kelun-Doosan Biotechnology Company Limited,

Others Doosan Credit Union, Yonkang Foundation, Chung-Ang University, Dongdaemoon Miraechangcho Foundation,

A group of large-

enterprise affiliates (*4)

Bigant Co., Ltd., Neoplux Co., Ltd., Neoholdings Co.,Ltd. and others

(*1) Newly established in 2016.

(*2) In 2016, Doosan DST Co., Ltd was disposed and Doosan Real Estate

Securitization Specialty Co., Ltd was liquidated.

(*3) Doosan Tower Co., Ltd. changed its name into Doota Mall Co., Ltd. in 2016.

(*4) Although these companies are not applicable to related parties defined in K-

IFRS 1024 Paragraph 9, a group of large-size affiliates designated by the Korea

Fair Trade Commission are classified as related parties according to the

resolution by the Securities & Futures Commission in accordance with

substantial relationship defined in IFRS 1024 Paragraph 10.

-109-

(2) Significant operational transactions with related parties for the year ended December

31,2016 and 2015 are as follows (in millions of Korean won):

2016

Sales and others Purchases and others

Related party

Sales

Disposal of

property, plant

equipment

and intangible

assets

Other

revenue Purchase

Acquisition of

property, plant

and equipment

and intangible

assets

Other

expense

Parent:

Doosan Corp ￦69,738 ￦52,016 ￦1,284 ￦111,779 ￦29,869 ￦127,814

Associates and joint ventures:

Kyunggi Railroad Co., Ltd. 47,047 - - 3 - -

New Seoul Railway Corporation 10,661 - - 232 - -

Tamra Offshore Wind Power Co., Ltd., 39,767 - - - - -

Others

264 - 180 484 - -

Subtotal ￦97,739 ￦- ￦180 ￦719 ￦- ￦-

Other related parties:

Doota mall Co.,Ltd. 56,271 - - 620 - 6,581

Oricom Inc. 1,200 - 21 336 - 14,350

Hancom Co., Ltd. 830 5,325 - - - -

Doosan DST Co., Ltd. 3,177 - 28 - - -

Doosan Bears Inc. - - - 4 - 13,496 Doosan Information and

Communications America, LLC

- - 143 114 - 36,786

Doosan Information and Communications China Co., Ltd.

- - - 2 - 5,807

Doosan Information and

Communications Europe Ltd.

1,735 - - 31,311 - -

Doosan Leadership Institute 1,213 4 - 13 - 9,893

Doosan Mecatec Co., Ltd. 4,703 - 1 - - 9,031

Doosan Credit Union 1 5,325 - - - -

Chung-Ang University 18,533 - - 1,035 - 6,605

Others 258 - 14 13 - 992

Subtotal ￦87,921 ￦10,654 ￦207 ￦33,448 ￦- ￦103,541

Total

￦255,398 ￦62,670 ￦1,671 ￦145,946 ￦29,869 ￦231,355

-110-

2015

Sales and others Purchases and others

Related party

Sales

Disposal of

property, plant

equipment

and intangible

assets

Other

revenue Purchase

Acquisition of

property, plant

and equipment

and intangible

assets

Other

expense

Parent:

Doosan Corp ￦45,369 ￦16,566 ￦1,267 ￦112,783 ￦135,947 ￦150,043


Kyunggi Railroad Co., Ltd. 81,243 - - 1 - -

Tamra Offshore Wind Power Co., Ltd., 63,443 - - 2 - -

Others

174 - 3,116 960 - 61

Subtotal ￦144,860 ￦- ￦3,116 ￦963 ￦- ￦61


Doota mall Co.,Ltd. 36,303 - - 701 - 9,984

Oricom Inc. 1,336 487 24 284 - 18,230

Doosan DST Co., Ltd. 5,681 - 55 - - -

Doosan Bears Inc. - - - 4 - 18,607 Doosan Information and

Communications America, LLC

- - 69 - - 33,588

Doosan Information and Communications China Co., Ltd.

- - - - - 9,095



- - - - - 28,179

Chung-Ang University 45,841 - - 1,121 40 14,130

Others 1,363 - 278 370 - 1,293

Subtotal ￦90,524 ￦487 ￦426 ￦2,480 ￦40 ￦133,106

Total

￦280,753 ￦17,053 ￦4,809 ￦116,226 ￦135,987 ￦283,210

-111-

(3) The outstanding receivables and payables arising from the transactions with related

parties(excluding dividend and investment) as of December 31,2016 and 2015 are as


2016

Receivables Payables

Trade receivables

Loans receivables

Other receivables

Trade Payables

Other payables

Parent:

Doosan Corp ￦4,718 ￦- ￦1,665 ￦47,908 ￦130,376


Kyunggi Railroad Co., Ltd. - 35,000 - - - Shinbundang Railroad Co., Ltd. 11,023 27,859 - 5 -

Tamra Offshore Wind Power Co., Ltd. - - 115 - 12,795

Haman Industrial Complex Company 1,535 - 4,196 - -

Others 3 - - 495 152

Subtotal ￦12,561 ￦62,859 ￦4,311 ￦500 ￦12,947


Doota mall Co.,Ltd. 1,862 - 4,569 126 218

Oricom Inc. 750 - 14 5,756 5,555



1,348 - - 8,308 -

Doosan Mecatec Co., Ltd. 43,401 - 12,570 - 9,023

Others 221 - 2,614 272 2,445

Subtotal ￦47,582 ￦- ￦19,767 ￦14,462 ￦17,241

Total

￦64,861 ￦62,859 ￦25,743 ￦62,870 ￦160,564

2015

Receivables Payables

Trade

receivables Other

receivables Loans

receivables Trade

Payables Other

payables

Parent:

Doosan Corp ￦4,498 ￦3,017 ￦- ￦23,055 ￦121,518


Kyunggi Railroad Co., Ltd. 101 269 26,000 1 -

Shinbundang Railroad Co., Ltd. 11,023 - 15,858 10 -

Tamra Offshore Wind Power Co., Ltd. 63,126 - - - 12,795

Haman Industrial Complex Company 5,523 5,929 - - -

Others 75 - 560 133 79

Subtotal ￦79,848 ￦6,198 ￦42,418 ￦144 ￦12,874


Doota mall Co.,Ltd. 31,640 5,206 - 14 613

Oricom Inc. 784 232 - 9,337 4,859



- - - - 8,175

Others 1,120 2,383 - 72 3,462

Subtotal ￦33,544 ￦7,821 ￦- ￦9,423 ￦17,109

Total

￦117,890 ￦17,036 ￦42,418 ￦32,622 ￦151,501

-112-

(4) Financial transactions (including investment) with related parties for the year ended

December 31,2016 and 2015 are as follows (in millions of Korean won):

2016

Loans Investments Dividend Equity

Loans Collection Received Provided Income Payout Disposal Purchase

Parents:

Doosan Corp ￦- ￦- ￦- ￦- ￦- ￦37,354 ￦33,217 ￦-


Oricom Inc. - - - - - - 6,525 -

DIP Holdings co., ltd. - - - - - - 117,201 -

Doosan Mecatec Co., Ltd. - - - 117,201 - - - -

Subtotal ￦- ￦- ￦- ￦117,201 ￦- ￦- ￦123,726 ￦-


Shinbundang Railroad Co., Ltd. 12,001 - - - - - - -

Tamra Offshore Wind Power Co., Ltd. - - - 2,016 - - - -

Kyunggi Railroad Co., Ltd. 9,000 - - - - - - -

New Seoul Railway Corporation 45 45 - 7,421 - - - -

KIAMCO - - - 23,149 - - - -


Sales Co., Ltd - - - 355 - -

- -

Subtotal ￦21,046 ￦45 ￦- ￦32,941 ￦- ￦- ￦- ￦-

Total ￦21,046 ￦45 ￦- ￦150,142 ￦- ￦37,354 ￦156,943 ￦-

2015

Loans Investments Dividend

Loans Collection Received Provided Income Payout

Parents:

Doosan Corp ￦- ￦- ￦- ￦- ￦- ￦32,959

Other related parties: Doosan Power Systems Pension Scheme - - 25,000 - - -


Doosan (China) Financial Leasing Corp. 105,926 - - - - -

Power Solutions International, Inc. - - - 1,108 - - Kyunggi Railroad Co., Ltd. 13,700 - - - - -

New Seoul Railway Corporation 206 - - - - - Shinbundang Railroad Co., Ltd. 6,000 - - - - -

Subtotal ￦125,832 ￦- ￦- ￦1,108 ￦- ￦-

Total ￦125,832 ￦- ￦25,000 ￦1,108 ￦- ￦-

(5) The Group provides payment guarantees and collateral to certain related parties as of

December 31, 2016 (See Notes 33 and 34).

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(6) Key management personnel are standing directors who have authorities and

responsibilities for planning, operation and control of the business of the Group.

Compensation for key management personnel for the year ended December 31,2016 and

2015 consists of following (in millions of Korean won):

2016 2015

Short-term employee benefits ￦70,333 ￦68,859

Severance and retirement

benefits

4,861 5,343

Share-based payment 463 1,258

Total

￦75,657 ￦75,460

36. CONSOLIDATED STATEMENTS OF CASH FLOWS:

(1) Details of non-cash and changes in operating assets and liabilities to reconcile profit for

the year ended December 31, 2016 and 2015 are as follows (in millions of Korean won):

2016 2015

Loss for the period:

￦(215,525) ￦(1,750,899)

Adjustments:

Interest expenses 518,020 630,155

Loss on foreign currency translation 174,397 311,102

Bad debt expenses 24,839 321,752

Other bad debt expenses 210,007 284,535

Loss on valuation of inventory(reversal) (16,201) 28,607

Loss on valuation of derivative financial instruments 224,664 318,405

Loss on valuation of firm commitments 76,489 89,306

Gain(Loss) on equity method investments 14,608 81,659

Depreciation 328,306 371,355

Amortization of intangible assets 203,952 214,125

Loss on disposal of property, plant and equipment 14,902 9,301

Impairment loss on property, plant and equipment 10,080 129,915

Impairment loss on intangible assets 156,114 196,904

Impairment loss on non-current assets classified as held-for-sale 66,938 71,811

Impairment loss on long-term financial instruments 32,393 -

Severance and retirement benefits 126,093 148,379

Share-based payments 324 985

Provision for construction warranties(reversal) (13,949) 28,230

Financial guarantee fee 5,446 21,807

Loss on redemption of bonds 9,844 350

Income tax expense 290,587 167,893

Interest income (41,019) (45,199)

Dividend income (304) (1,646)

Gain on foreign currency translation (128,752) (126,522)

Gain on valuation of derivative financial instruments (104,512) (142,608)

Gain on valuation of firm commitments (182,478) (297,431)

Gain on disposal of non-current assets classified as held-for-sale (1,102) 338

Gain on disposal of other non-current assets - (29,718)

Gain on disposal of discontinued operations (458,492) -

Others 126,321 13,018

Subtotal ￦1,667,515 ￦2,796,808

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2016 2015

Changes in operating assets and liabilities:

Trade receivables 108,409 (41,587)

Due from customers for contract work (332,969) 10,505

Other receivables 29,047 (10,674)

Inventories 112,039 (140,137)

Other current assets (2,855) 40,187

Other non-current assets 4,281 18,335

Derivative financial assets and liabilities (133,048) (79,397)

Firm commitments assets and liabilities 82,915 106,759

Trade payables 528,147 (411,979)

Other payables 9,138 235,907

Due to customers for contract work (242,723) 85,848

Other current liabilities (64,668) (74,465)

Reserve for construction warranties 4,814 41,707

Reserve for other provision 282 882

Other non-current liabilities 122,878 (7,498)

Severance payments paid (110,957) (258,239)

Plan assets (74,842) 2,748

Others (2) 1,130

Subtotal ￦39,886 ￦(479,968)

Total

￦1,491,876 ￦565,941

(2) Significant transactions not involving cash flows for the year ended December 31,2016

and 2015 are as follows (in millions of Korean won):

2016 2015

Classification of assets(liabilities) classified as held for sale in

discontinued operations

￦86,044 ￦230,075

Transfer from construction-in-progress to another account 227,308 225,321

Transfer from property, plant and equipment to another account 219,684 74,964

Reclassification between short-term and long-term financial

instruments

- 50,417

Transfer to current portion of bonds and borrowings 1,024,297 925,528

Increase in other payables from acquisition of property, plant

and equipment

19,201 59,460

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37. NON-CURRENT ASSETS CLASSIFIED AS HELD-FOR-SALE:

The group reclassified HRSG division and others to non-current assets classified as held-for-

sale which the group steadily makes an effort to dispose of the asset. The details of assets are


2016

HRSG Others Total

Non-current assets classified as held-for-sale

Trade receivables ￦25,247 ￦- ￦25,247

Due from customers for contract work 12,105 - 12,105

Inventories 8,512 - 8,512


Other assets 6,794 13 6,807

Total

￦135,612 ￦29,160 ￦164,772

Non-current liability classified as held-for sale

Trade payables ￦2,834 ￦- ￦2,834

Short-term borrowings 14,595 - 14,595

Advanced received 285 - 285

Other liabilities 6,993 - 6,993

Total

￦24,707 ￦- ￦24,707

2015

Non-current assets classified as held-for-sale

Inventories ￦22,604

Property, plant and equipment 75,616

Investment properties 21,000

Total ￦119,220

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38. DISCONTINUED OPERATIONS:

(1) DEC, a subsidiary, disposed of both HRSG division and CPE (Chemical Process

Equipment) division in 2016. Additionally, the group steadily makes an effort to disposal

of the asset owned by DHI Vietnam Haipong Co., Ltd. And Doosan Heavy Industry

Vietnam Co., Ltd.

In 2016, DEC disposed its CPE (Chemical Process Equipment) division through

investment in kind agreement, and the company steadily makes an effort to dispose

HRSG division.

Business division Description

Rexcon

DEC, a subsidiary, discontinued and disposed the

division Rexcon in the prior period.

OSS DEC, a subsidiary, discontinued the division OSS in

the prior period.

Machine Tools business DI, a subsidiary, disposed the division Machine Tools

business in the current period.

HRSG 1) DEC : Disposal of the division HRSG

2) DVH (Subsidiary of DEC): DVH which is

related to the business of HRSG is on the process

of disposal. Division HRSG is classified to non-

current assets as held-for-sale.

3) VINA (Subsidiary of DHI): Division HRSG is

classified to non-current assets as held-for-sale.

CPE 1) DEC: Transferred to Doosan Mecatec.

2) Doosan Heavy Industries Vietnam Co., Ltd :

Division CPE is discontinued and assets of the

division is on the process of external disposal

(2) Discontinued division Machinery Tools business in DI and discontinued division

HRSG in DEC, are disposed As of December 31, 2016. The group reclassified HRSG

division and CPE division to non-current assets classified as held-for-sale which the

group steadily makes an effort to disposal of the asset by Doosan Heavy Industries

Vietnam Co. and DHI Vietnam Haipong Co., Ltd.(See note 37).

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(3) The results of DEC and DI discontinued for the year ended December 31,2016 and 2015

are presented below (in millions of Korean won):

2016 Machine

Tools

business HRSG CPE Total Sales ￦313,348 ￦181,632 ￦169,482 ￦664,462

Cost of goods 241,571 158,750 156,541 556,862 Selling and administrative cost 48,909 18,387 18,806 86,102

Operating profit(loss) 22,868 4,495 (5,865) 21,498

Other non-operating income (expense) (10,608) (130,491) (19,607) (160,706)

Gain before income tax 12,260 (125,996) (25,472) (139,208)

Income tax expenses 5,944 98 - 6,042

Gain (loss) from discontinued operations ￦6,316 ￦(126,094) ￦(25,472) ￦(145,250)

Gain (loss) from disposal of discontinued operations 176,451 287,537 (3,579) 460,409 Income tax expense related to disposal of


66,774 86,248 - 153,022

Subtotal ￦109,677 ￦201,289 ￦(3,579) ￦307,387

Gain (loss) of discontinued operations

￦115,993 ￦75,195 ￦(29,051) ￦162,137

2015

Machine Tools

business HRSG CPE OSS Rexcon Total

Sales ￦1,248,091 ￦164,226 ￦336,327 ￦976 ￦56,228 ￦1,805,848

Cost of goods 920,383 121,473 336,586 3,248 53,176 1,434,866

Selling and administrative cost 205,179 18,641 63,406 1,489 3,480 292,195

Operating profit(loss) 122,529 24,112 (63,665) (3,761) (428) 78,787

Other non-operating income (expense)

(5,539)

(4,651)

(20,597)

(2,744)

(5,914)

(39,445)

Gain before income tax 116,990 19,461 (84,262) (6,505) (6,342) 39,342

Income tax expenses 34,362 (155) - - - 34,207 Gain (loss) from discontinued

operations

82,628 19,616

(84,262) (6,505) (6,342) 5,135 Gain (loss) related to disposal of


- -

- - (12,297) (12,297)

Gain (loss) of discontinued

operations

￦82,628 ￦19,616 ￦(84,262) ￦(6,505) ￦(18,639) ￦(7,162)

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(4) The net cash flows incurred by discontinued operations for the year ended December

31,2016 and 2015 are as follows (in millions of Korean won):

2016

Machine

Tools business HRSG CPE Total

Net cash flows provided by (used in) operating activities ￦2,209 ￦(62,422) ￦(69,428) ￦(129,641)

Net cash flows provided by investing activities(*1) 923,928 112,310 67,269 1,103,507

Net cash flows provided by (used in) financing activities (30,714) 5,608 - (25,106)

Net foreign exchange difference - 86 - 86

Net cash flows

￦895,423 ￦55,582 ￦(2,159) ￦948,846

(*1) Investing activities includes cash flows from disposal of discontinued operations.

2015

Machine Tools

business HRSG CPE OSS Rexcon Total

Net cash flows provided by

(used in) operating activities ￦36,432 ￦88,468 ￦42,631 ￦(7,862) ￦(24,400) ￦135,269

Net cash flows provided by

(used in) investing activities(*1)

(16,546) (3,740) (4,011) 4 127,998 103,705 Net cash flows provided by

(used in) financing activities

29,791 (13,542) - 5,699 24,720 46,668 Net foreign exchange

difference

- (54) - 138 - 84

Net cash flows ￦49,677 ￦71,132 ￦38,620 ￦(2,021) ￦128,318 ￦285,726

(*1) Investing activities includes cash flows from disposal of discontinued operations.

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39. BUSINESS COMBINATIONS:

(1) Details of business combination for the year ended December 31,2016 are summarized


Acquired company Principal activity

Date of

acquisition

Interest after

acquisition

Purchase

consideration

Doosan GridTech Inc. Software and System engineering June 30, 2016 100% ￦36,108

Doosan GridTech LLC Software and System engineering June 30, 2016 100%

The group acquired Doosan GridTech Inc. and Doosan GridTech LLC to penetrate ESS

(Energy Storage System) business and to enhance the competitiveness of related business

by obtaining core technologies of Energy Storage System.

(2) Purchase consideration arising from the business combinations for the year ended

December 31,2016 is as follows (in millions of Korean won):

Amount

Cash and cash equivalent ￦36,108

(3) Fair value of the identifiable assets and liabilities arising from the business combinations

for the year ended December 31,2016 are as follows (in millions of Korean won):

Amount Fair value of identifiable assets: ￦13,103

Current assets 6,247

Non-current assets 6,856

Fair value of identifiable liabilities: 6,651

Current liabilities 4,338

Non-current liabilities 2,313

Fair value of identifiable net assets 6,452

(4) Net cash outflow arising from the business combinations for the year ended December

31,2016 is as follows

Amount Purchase by cash and cash equivalent ￦36,108

Less : Acquisition of cash and cash equivalent 4,267

Total ￦31,841

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40. SUBSEQUENT EVENT:

(1) The Group announced that it will issue KRW 500,000 million of bonds with warrants on

May 4, 2017. The issuance of bonds with warrants was approved by the board of directors

on February 27, 2017.

① Maturity Date : a 5-year maturity, May 4, 2022

② Coupon rate : 1.00%

③ YTM : 2.00%, 105,245% of the principal amount will be paid at maturity

④ Advanced redemption right: the redeemable put option that allows investors to redeem

them three years post issuance (May 4, 2020). 103.0839% of the principal amount will

be paid.

⑤ The warrant exercise price: ￦26,550/share (projection)

⑥ The warrant exercise ratio: one registered common stock per one security of stock

warrant.

(2) On February 16, 2017, Korea Gas Corporation filed the lawsuit of KRW 200,000 million

against each of total 13 construction companies including the Group.

41. APPROVAL OF FINANCIAL STATEMENTS:

The financial statements were issued and approved on February 16, 2017, and will get final

approval during the shareholders’ meeting on March 31, 2017.

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